Wednesday, January 14, 2015

MBE Fast Fact: Installment Contracts

Under the UCC the "Perfect Tender Rule" allows a buyer to reject goods if the goods do not conform to the specifications as agreed upon by the buyer and seller when entering into the contract. But the rules change when an installment contract (one which requires or authorizes the delivery of goods in separate lots to be separately accepted) is involved. As always, an exception to a general rule should be noted carefully, as it's likely to be tested.

It is more difficult for a buyer under an installment contract to reject a non-conforming tender of goods than it is for a buyer in a non-installment contract to do the same. Rejection of an installment in an installment contract is permissible only if the non-conformity substantially impairs the value of that particular installment and if the installment cannot be cured. In other words, if the seller gives adequate assurances of an intent to cure the non-conforming installment, then the buyer must accept the installment and await the cure.

A non-conformity of an installment can in fact render the entire contract breached, but only under a very limited set of circumstances. Specifically, whenever a non-conformity with respect to one or more installments substantially impairs the value of the whole contract (rather than merely an installment) there is a breach of the whole.

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