What Is the Buyer's Performance Under the UCC?

In simplified terms, performance of a contract means doing what you're required to do under the contract. If you fail to do what's required—and thus fail to perform under the contract—then you're in breach of the contract. When you've breached the agreement, the other side can sue (and the court can make you pay damages.)

When it comes to contracts specifically related to the buying and selling of goods, the Uniform Commercial Code (UCC) has various rules regarding the buyer's performance. Some key rules are those involving:

• payment
• inspection
• rejection, and
• revocation.

Many of these rules rely on the general principle of what's reasonable in the circumstances. In practice, disputes are generally treated on a case-by-case basis.

Buyer's Primary Obligation: Payment for Goods

Under the UCC, the primary obligation of a buyer of goods is to pay for the goods. The general rule is that the buyer must accept and pay for the goods when the seller has delivered—or, to use more technical language, "tendered delivery of"—the goods.

More particularly, the UCC indicates that by default and unless otherwise agreed to:

• the seller's delivery of the goods and the buyer's payment for the goods are expected to happen at the same time
• the seller's delivery of the goods is a condition of the buyer's duty to pay, and
• the buyer's payment for the goods is a condition of the seller's duty to complete delivery.

The seller and buyer can make other contractual arrangements regarding payment and delivery of the goods. But, under the UCC, when payment is due on delivery, the buyer doesn't have the right to keep or dispose of the goods unless they pay for the goods.

As to the form of payment, the UCC allows for payment "by any means or in any manner current in the ordinary course of business," unless the seller demands payment in cash. (U.C.C. § 2-511 (2023).)

Depending on the circumstances, the buyer could pay by:

• bank check
• credit card
• electronic transfer, or
• another method of payment.

The method of acceptable payment might be specified in the contract. Even if a method isn't specified, typically, this topic isn't the subject of many disputes.

Buyer's Right to Inspect Goods

The UCC gives a buyer a right to inspect goods prior to accepting or paying for them. The buyer isn't required to pay for goods that they don't accept. More specifically, before making payment, the buyer has the right to inspect the goods "at any reasonable place and time and in any reasonable manner." (U.C.C. § 2-513 (2023).)

In cases where the buyer is taking possession of the goods at the seller's location, this likely would mean an inspection at that location. In cases where the seller ships the goods to the buyer, the buyer has the right under the UCC to perform the inspection after the goods have arrived at their destination.

Be aware that the UCC distinguishes between a buyer paying for goods and a buyer "accepting" goods. Acceptance is discussed below.

The buyer bears the cost of the inspection. The buyer is responsible for any costs associated with inspecting the goods. However, if the goods don't conform to the contract, the buyer has the right to recover inspection costs from the seller. For example, suppose Ash owns a jewelry store and orders diamonds from Misty to stock his store. Ash hires an expert to inspect the diamonds to see if they're of the quality that Misty guaranteed. The inspector determines that they're not of the promised quality, and Ash cancels the deal. Because the diamonds didn't conform to their deal, Ash can recover the cost of the inspection from Misty.

Exceptions to buyer's right to inspection. The UCC has two specific exceptions to the general inspection rule. When these exceptions apply, the buyer must pay before making any inspection. The first exception is when the contract is for goods delivered C.O.D. (cash on delivery) or on similar terms. The second exception is when the contract is for payments against documents of title.

Buyer's Right to Reject Goods

General contract law commonly allows for a party to fulfill contractual obligations through substantial performance. Under this doctrine, the seller can deliver goods that mostly (substantially)—though not exactly or perfectly—meet the requirements of the contract without breaching the contract.

However, for contracts for the sale of goods, the UCC requires "perfect tender" by the seller. In other words, the seller must deliver the exact number and specified goods under the contract on the exact date and through the exact delivery method called for in the contract.

If the seller doesn't meet the contract requirements, the buyer can either:

• accept all of the goods
• reject all of the goods, or
• accept some of the goods and reject the rest.

(U.C.C. § 2-601 (2023).)

If the buyer is going to reject the goods, the UCC requires that the buyer both rejects the goods within a reasonable time after the goods have been delivered and notifies the seller of the rejection within a reasonable time. (U.C.C. § 2-602 (2023).)

If a buyer wants to reject goods because they don't conform to the contract, the rejection must occur before the buyer accepts the goods.

When Does Acceptance of the Goods Occur?

According to the UCC, acceptance occurs when the buyer:

• after a reasonable opportunity to inspect the goods, lets the seller know that the goods either conform with the contract requirements or they don't but the buyer will accept them anyway
• doesn't reject the goods after a reasonable time for inspection has passed, or
• acts in a way that shows they accept the goods.

(U.C.C. § 2-606 (2023).)

Your specific situation will determine what a reasonable opportunity to inspect or a reasonable time after delivery of the goods is. On a state-by-state basis, there might also be case law that can provide further guidance.

If the goods don't conform to the contract, the buyer might not be able to reject the goods right away. Under some circumstances, the buyer must give the seller an opportunity to cure (fix) whatever problem or defect (nonconformity) in the goods led to the initial rejection.

Does the Seller Have the Right to "Cure" Defective Goods?

If a seller delivers goods that don't match the contract, and the buyer rejects those goods, the UCC gives the seller an opportunity to fix the problem—or to "cure" the goods.

The seller has the right to cure the defective goods in two specific situations:

• where goods were rejected because of nonconformity, but the seller still has time under the contract to provide conforming goods, and
• where the seller had reasonable grounds to believe that the nonconforming goods delivered to the buyer would be acceptable to the buyer, with or without a money allowance (discount).

(U.C.C. § 2-508 (2023).)

For more information on the seller's rights (and obligations) under a contract for the sale of goods, see what the UCC says about the seller's performance.

Revocation of Acceptance by Buyer

Rejection occurs before a buyer accepts the goods, whereas revocation refers to situations where a buyer has already accepted the goods but the buyer takes back their acceptance. The UCC gives buyers the right to revoke acceptance of goods only in very limited circumstances. A buyer can revoke their acceptance only of nonconforming goods.

Specifically, the buyer can revoke their acceptance of the nonconforming goods only if either:

• the buyer initially accepted the goods because they reasonably assumed that the seller would quickly fix the issue with the goods; or
• the buyer initially accepted the goods without realizing that there was an issue with the goods either because the problem was difficult to discover or because the seller assured them that the goods met the contract requirements.

(U.C.C. § 2-608 (2023).)

As with rejection, revocation must happen within a reasonable time after the buyer discovers the grounds for the revocation. Additionally, the buyer must revoke their acceptance before there's any substantial change in the condition of the goods—unless the change is caused by their own defects. Moreover, as with rejection, revocation isn't effective unless and until the buyer notifies the seller of it.

Buyer's Duty to Mitigate When the Seller Breaches

Unlike the seller's duty to mitigate when the buyer breaches, the buyer isn't required to mitigate their damages. Instead, the buyer can choose to mitigate their damages.

When a seller fails to deliver goods as required under a contract, the buyer can "cover" by getting the same or similar merchandise from another source to mitigate their damages. In essence, "covering" allows the buyer to buy substitute goods from another seller to help make up for the seller's failure to perform. Generally, the buyer can find replacement goods with little effort or delay—and their potential losses can be largely, if not entirely, avoided.

The buyer's damages are calculated based on the buyer's decision to cover. Regardless of whether the buyer finds substitute goods, the buyer would be entitled to incidental and consequential damages. Though if the buyer doesn't cover, they'd be entitled to a lesser extent of incidental and consequential damages.

"Incidental damages": These types of damages include any expenses the buyer reasonably incurs in inspecting, receiving, transporting, or taking care of the goods, along with any other costs related to finding replacement goods.

"Consequential damages": These types of damages include any losses the buyer suffers because of the seller's breach that the seller had reason to know about that can't be prevented from cover, as well as any personal injury or property damage from a breach of warranty.

(U.C.C. § 2-715 (2023).)

Measuring Damages When the Buyer Covers

When the buyer covers, the measure of damages is the difference between the cost of cover and the contract price, together with any consequential or incidental damages. You deduct from the buyer's losses any expenses the buyer saved as a result of the breach (U.C.C. § 2-712 (2023).)

For example, suppose Harry's Haircuts buys four salon chairs from Sally's Seat Shop for a total of $1,200. On delivery day, Sally's delivers nonconforming chairs, which Harry's rejects. After rejecting the goods, Harry's reasonably buys four comparable salon chairs from another vendor for $1,600. Harry can recover from Sally's $400 (the difference between the replacement chairs and the contract price) as well as any incidental and consequential damages.

Measuring Damages When the Buyer Doesn't Cover

A buyer isn't always able or willing to cover, and they're not required to. For instance, it might be particularly difficult to cover when the goods are unique. Sometimes there's no real alternative source readily available to the buyer.

If the buyer chooses not to cover, the UCC offers an alternative remedy. In such cases, the measure of damages is the difference between the market price for replacing the goods at the time the buyer learned of the breach and the contract price. You can add any consequential and incidental damages to the buyer's losses except for those damages that require the buyer to cover. (U.C.C. § 2-713 (2023).)

For example, suppose Hakeem owns a music store and buys an antique piano from Andre. The piano is rare and more than 150 years old. Hakeem negotiates Andre down to a price of $3,000. At that time, the fair market price for the piano or one like it would be $3,800. After striking the deal, Andre changes his mind and wrongfully fails to deliver the piano to Hakeem the next day. Hakeem chooses not to find a replacement. In this case, Hakeem can recover from Andre $800 (the difference between the market price for replacing the piano and the contract price). Because Hakeem chose not to cover, he wouldn't be entitled to some incidental and consequential damages.

Additional Guidance for Buyers

As the buyer, you're generally in a good position to protect yourself from the seller's nonperformance, especially because the UCC requires perfect tender. On your end, your primary task is to pay the seller. Apart from that, it's mostly up to the seller to produce and deliver the goods at the quality and on the date you've agreed to. And if they don't, the UCC provides you with several remedies so you can choose the path that's most beneficial to you.

But if you need legal assistance or you're unsure of your rights, talk to a business attorney. They can advise you on your state's laws and on your options according to your rights.