Performance under the Commercial Code

Division 2, Chapter 5 of the Commercial Code concerns performance in sales. Section 2501 provides that the buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are nonconforming and he has an option to return or reject them.

This identification can be made at any time and in any manner explicitly agreed to by the parties. In the absence of explicit agreement, identification occurs upon three specified occurrences. The seller retains an insurable interest in goods so long as title to or any security interest in the goods remains in him and where the identification is by the seller alone he may until default or insolvency or notification to the buyer that the identification is final substitute other goods for those identified.

Section 2502 specifies that, a buyer who has paid a part or all of the price of goods in which he or she has a special property under the provisions of the immediately preceding section may on making and keeping good a tender of any unpaid portion of their price recover them from the seller if either of two specified cases occur. The buyer’s right to recover the goods vests upon acquisition of a special property, even if the seller had not then repudiated or failed to deliver. If the identification creating his or her special property has been made by the buyer, he or she acquires the right to recover the goods only if they conform to the contract for sale.

Section 2503 requires tender of delivery to make the seller put and hold conforming goods at the buyer’s disposition and give the buyer any notification reasonably necessary to enable him to take delivery. The manner, time and place for tender are determined by the agreement and this division, and in particular tender must be at a reasonable hour, but the buyer must furnish facilities reasonably suited to the receipt of the goods.

Tender requires that the seller either tender a negotiable document of title covering such goods or procure acknowledgment by the bailee of the buyer’s right to possession of the goods, but tender to the buyer of a nonnegotiable document of title or of a record directing the bailee to deliver is sufficient tender, receipt by the bailee of notification of the buyer’s rights fixes those rights as against the bailee and all third persons.

In addition, where the contract requires the seller to deliver documents he must tender all the documents in correct form and tender through customary banking channels is sufficient and dishonor of a draft accompanying or associated with the documents constitutes nonacceptance or rejection.

Section 2504 says that, where the seller is required or authorized to send the goods to the buyer and the contract does not require him to deliver them at a particular destination, then unless otherwise agreed he must do three specified actions. Failure to notify the buyer or to make a proper contract is a ground for rejection only if material delay or loss ensues.

Section 2505 states that, where the seller has identified goods to the contract by or before shipment, the procurement of a negotiable bill of lading to his own order or otherwise reserves in him a security interest in the goods. A nonnegotiable bill of lading to himself or his nominee reserves possession of the goods as security, with exception.

In addition, when shipment by the seller with reservation of a security interest is in violation of the contract for sale it constitutes an improper contract for transportation within the preceding section but impairs neither the rights given to the buyer by shipment and identification of the goods to the contract nor the seller’s powers as a holder of a negotiable document of title.

Section 2506 states that a financing agency by paying or purchasing for value a draft which relates to a shipment of goods acquires to the extent of the payment or purchase and in addition to its own rights under the draft and any document of title securing it any rights of the shipper in the goods including the right to stop delivery and the shipper’s right to have the draft honored by the buyer. In addition, the right to reimbursement of a financing agency which has in good faith honored or purchased the draft under commitment to or authority from the buyer is not impaired by subsequent discovery of defects with reference to any relevant document which was apparently regular.

Section 2507 provides that tender of delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them. Tender entitles the seller to acceptance of the goods and to payment according to the contract. Where payment is due and demanded on the delivery to the buyer of goods or documents of title, his right as against the seller to retain or dispose of them is conditional upon his making the payment due.

Section 2508 says that, where any tender or delivery by the seller is rejected because nonconforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery. And, where the buyer rejects a nonconforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonally notifies the buyer have a further reasonable time to substitute a conforming tender.

Section 2509 says that, where the contract requires or authorizes the seller to ship the goods by carrier, it it does not require him to deliver them at a particular destination, the risk of loss passes to the buyer when the goods are duly delivered to the carrier even though the shipment is under reservation. However, if it does require him to deliver them at a particular destination and the goods are there duly tendered while in the possession of the carrier, the risk of loss passes to the buyer when the goods are there duly so tendered as to enable the buyer to take delivery.

Where the goods are held by a bailee to be delivered without being moved, the risk of loss passes to the buyer in three specified instances. The risk of loss passes to the buyer on his receipt of the goods if the seller is a merchant; otherwise, the risk passes to the buyer on tender of delivery.

Section 2510 specifies that, where a tender or delivery of goods fails to conform to the contract as to give a right of rejection the risk of their loss remains on the seller until cure or acceptance. Where the buyer rightfully revokes acceptance, he may to the extent of any deficiency in his effective insurance coverage treat the risk of loss as having rested on the seller from the beginning.

Section 2511 specifies that tender of payment is a condition to the seller’s duty to tender and complete any delivery. In addition, tender of payment is sufficient when made by any means or in any manner current in the ordinary course of business unless the seller demands payment in legal tender and gives any extension of time reasonably necessary to procure it.

Section 2512 specifies that, where the contract requires payment before inspection, nonconformity of the goods does not excuse the buyer from making payment unless the nonconformity appears without inspection or despite tender of the required documents the circumstances would justify injunction against honor.

Section 2513 states that, where goods are tendered or delivered or identified to the contract for sale, the buyer has a right before payment or acceptance to inspect them at any reasonable place and time and in any reasonable manner. When the seller is required or authorized to send the goods to the buyer, the inspection may be after their arrival.

In addition, expenses of inspection must be borne by the buyer but may be recovered from the seller if the goods do not conform and are rejected. The buyer is not entitled to inspect the goods before payment of the price when the contract provides for delivery “C.O.D.” or on other like terms, or for payment against documents of title, except where such payment is due only after the goods are to become available for inspection.

Section 2514 says that, unless otherwise agreed, documents against which a draft is drawn are to be delivered to the drawee on acceptance of the draft if it is payable more than three days after presentment; otherwise, only on payment.

Section 2515 provides that, in furtherance of the adjustment of any claim or dispute, either party on reasonable notification to the other and for the purpose of ascertaining the facts and preserving evidence has the right to inspect, test and sample the goods including as may be in the possession or control of the other; and the parties may agree to a third party inspection or survey to determine the conformity or condition of the goods and may agree that the findings are binding upon them in any subsequent litigation or adjustment.