Dealing with time limits

'Reasonable' period to inspect
Published : 11/09/12
Text Size

What if a collector buys a bag of 90 percent silver Franklin half dollars and opens it a year later to discover it to contain only 40 percent silver clad Kennedy halves?

Or what if a dealer receives such a complaint from a customer (or physical return of the coins) more than a year after delivery?

In some cases, the seller’s invoice (or buyer’s purchase order) may contain a term specifically limiting the amount of time the buyer has to object to the delivery.

Returns, exchanges

Such clauses generally either give the buyer an unconditional return or exchange privilege for seven, 14 or even 30 days.

The clauses may provide that buyers must inspect their purchases and raise any discrepancies with the seller within a certain period of time or be deemed to have accepted the coins.

In the absence of any specific contractual provisions addressing the point, buyers’ rights of rejection are governed by the Uniform Commercial Code as enacted in the relevant state.

The analysis starts with UCC section 2-602, which states that a buyer can reject goods “within a reasonable time after delivery” and that rejections are effective only if the buyer “seasonably notifies the seller.”

Section 2-602 then states that a rejecting buyer can’t “exercise ownership” over the goods, and must reasonably care for them until the seller reclaims them.

If a buyer fails to reject the goods in accordance with section 2-602, then UCC section 2-606 states that the goods will be deemed to have been accepted, but with two important exceptions.

First, if the buyer had no “reasonable opportunity to inspect the goods,” then any time period for rejection does not start to run.

Second, UCC section 2-608 allows a buyer who has previously accepted goods to revoke that acceptance if it was based upon either (1) the difficulty of discovering nonconformities immediately after delivery or (2) the seller’s “assurances” that the goods conformed to the contract requirements.

But this right to revoke acceptance must be exercised “within a reasonable time after the buyer discovers or should have discovered the ground for it,” and must be conveyed to the seller.

The UCC’s frequent use of the word “reasonable” allows courts to view situations as a whole and determine whether under the given facts a buyer is bound to acceptance of goods.

In one California case involving steel coils, the court found that a revocation of acceptance made five months after delivery was reasonable because until the buyer’s customer complained about the quality of the steel and a chemical test was performed, the buyer could not have discovered the defect. (Revocation was made within nine days after the buyer received the test results.)

Wrongful rejection

In the case of a “wrongful rejection,” UCC section 2-703 entitles the seller to a choice of remedies, including suing for the price, reselling the goods and suing for the difference between the sales proceeds and the amount due under the original contract, and for any other “incidental” damages caused by the breach.

So while the UCC lists no actual time periods, it seems clear that unless the buyer in my Franklin half dollar scenario was unable to inspect the coins (so the seller couldn’t argue that any discrepancies “should have been discovered”), the alleged differences in the coins would not be considered latent and the buyer would have accepted the goods well before the one year had passed.

The seller would have the right to hold any returned goods for the buyer or ship them back to the buyer with an invoice for the shipping costs.

Armen R. Vartian is an attorney and author of A Legal Guide to Buying and Selling Art and Collectibles.

You are signed in as:null

Please sign in or join to share your thoughts on this story

No comments yet