A manufacturer entered into a contract to supply 10,000 custom-made parts to an assembler for $100,000, with delivery in three equal installments over three months. The contract specified that 'time is of the essence' and that failure to deliver any installment on time would constitute a material breach. The first installment was delivered one week late, causing the assembler minor production delays but no loss of sales. The assembler immediately canceled the entire contract. Was the assembler justified in canceling the entire contract?
- ANo, because a minor delay in one installment, causing no significant harm, does not typically justify cancellation of the entire contract under the UCC.
- BNo, because the assembler's damages for the delay were negligible, so only minor remedies are available.
- CYes, because the manufacturer breached the contract by late delivery, justifying cancellation.
- DYes, because the 'time is of the essence' clause made any delay a material breach.
Show answer & explanationAnswer & explanation
Correct answer: A. No, because a minor delay in one installment, causing no significant harm, does not typically justify cancellation of the entire contract under the UCC.
Under UCC Article 2 for installment contracts, a buyer can cancel the entire contract for a non-conforming installment only if the non-conformity substantially impairs the value of the entire contract. A late delivery of one installment, causing minor delays and no loss of sales, generally does not substantially impair the value of the entire contract, even with a 'time is of the essence' clause.
Why the other options are wrong
- B. This is incorrect. While the damages were negligible, the core issue is the right to cancel the entire contract, which requires substantial impairment under the UCC for installment contracts.
- C. This is incorrect. While the manufacturer did breach, not every breach in an installment contract justifies cancellation of the entire contract under the UCC.
- D. This is incorrect. While 'time is of the essence' clauses are relevant, under UCC installment contracts, the standard for cancellation is still 'substantial impairment of the whole contract,' which is a higher bar for a single installment breach.
UCC 2-612 Installment Contracts (Cancellation)
Under UCC 2-612, in an installment contract, a buyer may reject an installment if the non-conformity substantially impairs its value. However, cancellation of the entire contract is only justified if the non-conformity 'substantially impairs the value of the whole contract.'
- Applies to contracts for the sale of goods delivered in separate lots.
- Buyer can reject an installment if non-conformity substantially impairs that installment's value.
- Cancellation of the entire contract requires substantial impairment of the 'whole contract'.
- Buyer must give notice of cancellation and opportunity to cure if possible.
Memory trick: Installment Impairment: Single part needs Substance, Whole needs Severe.