Sales Law

Performance is the fulfillment of a promise in the contract. Many issues can arise in a sales contract after the contract is made and before a party's performance is required.

Sometimes performance may be made impracticable. If the goods are completely destroyed before the risk of loss has passed to the buyer, and the goods have not been destroyed through the fault of either party, the seller may be excused from performing. Risk of loss is responsibility for any damage or destruction of goods; the parties may decide in the contract when the risk of loss of the goods passes from the seller to the buyer. If the goods are only partially destroyed or have deteriorated, the buyer may demand to inspect the goods and either void the contract or accept the goods with a reduction in the contract price.

A seller may avoid performing only if the destroyed goods were specifically identified when the sale was made. For instance, if the sale is of a lamp handpicked by the buyer, the destruction of that particular lamp would excuse the seller's performance, and the seller would not be liable to the buyer for the loss. However, if the contract is simply for a lamp of a specific description, the seller could tender any lamp that meets the description, and the buyer would not be excused from performing.

There are two situations in which a party must make a substituted performance in case the agreed method of performance becomes impracticable. First, when the goods cannot be transported by the agreed-upon method of transportation, the seller must use available transportation that is a commercially reasonable substitute. Second, if an agreed-upon method of payment fails, the buyer must use a commercially reasonable substitute method of payment if one is available. If a party fails to substitute transportation or payment, that person could be liable to the other party for losses resulting from the failure.

In some cases the purpose of a sale may be frustrated by circumstances beyond the control of both buyer and seller. For example, assume that a party agrees to buy one thousand T-shirts in anticipation of a local rock concert. If the concert is cancelled after the sales contract is made, the buyer may escape the contract under the doctrine of frustration of purpose.

At times it may appear to a party that the other party will be unable to perform by the expected date. For example, assume that a party agrees to sell goods on credit. If the buyer becomes financially insolvent before the goods are delivered, the seller may demand cash before delivering the goods. If the goods are in transit, the seller may instruct the carrier to withhold delivery of the goods. A party is considered insolvent if he or she cannot pay debts as they come due, has ceased to pay debts, or has liabilities that exceed assets.

If a party has reasonable grounds to feel insecure about the other party's ability to perform, the insecure party may demand assurances before performing. For example, a seller may be insecure if a buyer falls behind in payments, or a buyer may feel insecure if a seller delivers defective goods to another party and those goods are of a kind similar to those expected by the buyer. In such cases the concerned party may demand assurances such as an advance payment or some other AFFIRMATIVE ACTION, and if the other party does not provide any assurance, the concerned party may withhold performance. Alternatively, if the other party gives the assurance, the concerned party must follow through on his obligations. Precisely what constitutes an effective assurance is a QUESTION OF FACT that depends on the nature of the goods, the size of the contract, the length of time until performance, and similar considerations. In any case a concerned party may not make commercially unreasonable demands on a party prior to performance and then withhold performance if the other party does not meet the demands.

If a party unequivocally declares an unwillingness to perform prior to the time of performance, the other party may consider the declaration an anticipatory breach of the sales contract. An anticipatory breach operates in the same way as an actual breach and gives the nonbreaching party the right to sue for losses resulting from the breach. A refusal to give assurances after a demand for assurances may be considered an anticipatory breach. A party may retract a repudiation if the retraction is made before the aggrieved party cancels the contract.