Business Law 101 / Good Faith Is A Big Part Of A Sales Contract

By Albert L. Kelley

Contracts are meant to be fair. The parties to a sales contract have a duty to use good faith to not do anything that would impair the other party in complying with the contract.

Unless the contract states differently, a sale occurs concurrently. That is, when the goods are delivered, the buyer must pay. These events occur at the same time. In a situation where the two are not simultaneous, the contact is complete when the last event takes place. Whether the goods are delivered first or the payment is made first, the contract is not complete until both sides have completed their obligations. There are three specific duties in a sales contract: the duty of the seller to deliver; the duty of the buyer to accept; and the duty of the buyer to pay. Each of these must be met or there is a breach.

If a party believes in good faith that the other side is going to breach the contact, they can cancel the contract. This is called anticipatory repudiation. An example is when the other side affirmatively states they are not going to perform their obligations, even though there is a contract. However, with a sales contract, if you believe the other side is going to breach the contract, you may ask for a written assurance that the deal will be honored. If the written assurance is not sufficient, you may also require security to be put up to guarantee performance. If the assurance is not given within 30 days, you may treat the agreement as if the other party had already breached it.

The seller must turn over the goods to the buyer. He does not always need to make a physical delivery, but he must make the items available to the buyer. The details of delivery are determined by the terms of the contract. The agreement should say who must deliver, or who will pick up; the place of delivery, the manner of delivery, and the time of delivery. If the goods do not match what is ordered, the buyer has the choice to accept or reject the goods. If the buyer rejects, the seller has the option of sending a corrected shipment. This is different from standard contracts where a failure to perform is an automatic breach of the agreement. If the time for performance has passed, then the seller gets an additional reasonable time to conform.

If seller has delivered the proper items, the buyer has an obligation to accept them. However, the buyer has the right to inspect the goods before acceptance. There is an exception when the sale is COD. For COD sales, the buyer must pay first and examine later.

Once the goods are accepted, the buyer then has the duty to pay for the items. Usually the payment must be made at the time of acceptance. Payment may be made by any method acceptable by the seller. It can be cash, check, or promissory note. However, if the sales agreement doesn’t state otherwise, the payment must be cash and the seller may refuse any other payment method.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is also the author of “Basics of Business Law” and “Basics of Florida’s Small Claims Court” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.

 

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