Sunday, November 18, 2012

How It's Tested: The Perfect Tender Rule

Under the common law, if one party to the contract breaches the contract, but the breach is deemed minor (rather than material), then the party who breached may still be able to recover damages minus the amount necessary for the non-breaching party to fix the damages caused by the breaching party. But the UCC does not make this distinction. Rather, under the UCC, the Perfect Tender Rule applies. This means that each party has to tender performance perfectly, or exactly as stated in the contract, and there will be no distinction made between minor and material breaches. In effect, under the UCC, all breaches are material breaches.

An exception to the Perfect Tender Rule, however, is where the seller has reason to believe that nonconforming goods will be acceptable to the buyer. (A common example presents a situation in which the same nonconformity has been accepted by the buyer in the past.) In such instances, upon notification of the seller's intent to cure the nonconformity, the seller must be given a reasonable time within which to cure that nonconformity. This prevents the buyer from canceling the contract (if the elements above have been satisfied), and so even if the seller has violated the Perfect Tender Rule, the seller will breach the contract only upon failure to cure after a reasonable amount of time.



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