A buyer and a seller entered into a contract for the sale of 1,000 widgets for $10 each, to be delivered in two installments of 500 widgets. The first installment arrived on time, but 100 of the 500 widgets were defective. The buyer immediately notified the seller of the non-conformity and rejected the first installment. The seller promptly offered to cure the defect by shipping 100 replacement widgets within two days. What is the buyer's right regarding the entire contract?
- AThe buyer can reject the first installment and sue for damages, but cannot cancel the entire contract unless the non-conformity substantially impairs the value of the entire contract.
- BThe buyer can reject the first installment but must wait to see if the second installment is also defective before canceling the entire contract.
- CThe buyer can immediately cancel the entire contract.
- DThe buyer must accept the cure and cannot cancel the contract.
Show answer & explanationAnswer & explanation
Correct answer: A. The buyer can reject the first installment and sue for damages, but cannot cancel the entire contract unless the non-conformity substantially impairs the value of the entire contract.
Under UCC 2-612 for installment contracts, a buyer can reject an installment if the non-conformity substantially impairs the value of that installment and cannot be cured. However, the entire contract can only be canceled if the non-conformity with respect to one or more installments substantially impairs the value of the whole contract. The seller's offer to cure prevents immediate cancellation of the whole contract unless the non-conformity is that severe.
Why the other options are wrong
- B. The buyer can reject the non-conforming installment, but the right to cancel the entire contract depends on whether the defect substantially impairs the value of the whole contract, not just whether the second installment is also defective.
- C. Immediate cancellation of the entire contract is only permissible if the non-conformity substantially impairs the value of the whole contract, which is not stated and might be prevented by a cure.
- D. The buyer is not required to accept a cure if the non-conformity substantially impairs the value of the installment and the seller does not have a right to cure under the circumstances (e.g., if the time for performance has passed). However, here, the seller offered to cure within a reasonable time.
UCC 2-612 Installment Contracts (Cancellation)
Under the UCC, an installment contract can be canceled by the buyer for non-conformity of an installment only if the non-conformity substantially impairs the value of the whole contract, not just the single installment.
- Applies to contracts for goods delivered in separate lots.
- Buyer can reject an installment if non-conformity substantially impairs that installment's value and cannot be cured.
- Buyer can cancel the whole contract ONLY if the non-conformity substantially impairs the value of the whole contract.
- Seller generally has a right to cure non-conformities in an installment.
Memory trick: Installment issues? Impairment of the 'Whole' is the key to contract control.