American Contract Law for a Global Age, 2017a

In this case we review a judgment in a lawsuit between a commercial seller
and a commercial buyer over rejected merchandise. Accordingly, we begin with a
quick review of some relevant UCC provisions:
A provision of the Uniform Commercial Code (UCC), § 2-601, (also enacted in
California as § 2-601 of the Commercial Code), is known as the perfect tender rule.
The operative words of the statute allow a buyer to reject “the whole” of a delivery of
goods if the goods “fail in any respect to conform to the contract.” Courts have noted
that the perfect tender rule imposes “a very high level of conformity” to the contract
on sellers, allowing buyers to “reject a seller’s tender for any trivial defect, whether
it be in the quality of the goods, the timing of the performance, or the manner of
delivery.” Midwest Mobile Diagnostic Imaging v. Dynamics Corp., 965 F. Supp. 1003,
1011 (W.D. Mich. 1997).
The perfect tender rule is tempered, however, by another UCC provision, § 2-
508 which affords sellers a right to cure the nonconformity.
Also, the perfect tender rule does not apply to installment contracts, an
exception which embodies a policy of the law to protect longer-term commercial
relationships. As one commentator has described the installment contract exception:
The policy in installment contracts is to avoid the abrupt termination of
a long term contractual relationship merely for technical reasons and to
keep the contract going. Where many deliveries are contemplated, minor
defects are likely to appear in some installments and it would give the
buyer an unreasonable commercial advantage if he could escape from
the contract for the trivial deficiencies which inevitably occur. In an
installment contract the buyer has sufficient bargaining power vis-a-vis
future shipments to adjust minor defects.”
William H. Lawrence, Appropriate Standards for a Buyer’s Refusal to Keep Goods
Tendered by a Seller, 35 WM. & MARY L. REV. 1635, 1654 n. 86 (1994).
The installment exception to the perfect tender rule is found in § 2-612 of the
UCC. Unlike the perfect tender standard of § 2-601, § 2-612 embodies a “substantial
impairment” standard; that is, the buyer may cancel “only when the nonconformity
of one or more installments ‘substantially impairs the value of the whole contract.’”
In the present case even the seller recognizes that, at the end of the day, six
percent of the parts it shipped were defective, which in the context of parts for
computer memory, not only fails to constitute perfect tender, but also represents a
substantial impairment of the value of the whole of the shipments. We therefore
conclude that under both the “perfect tender” standard and the “substantial
impairment” standard there was substantial evidence to support the trial court’s
decision that the seller take nothing by way of its complaint against the buyer.
______________________________________________________________________________
UNIT 21: STANDARDS OF CONTRACT PERFORMANCE 441