6.3 Cure, Rejection, Revocation & Installment Contracts
Key Takeaways
- Under UCC section 2-508 a seller may cure within the contract time after seasonable notice, and may cure beyond that time where the seller had reasonable grounds to believe the tender would be acceptable.
- Rejection must occur within a reasonable time after delivery and requires seasonable notice to the seller, or the buyer is deemed to have accepted.
- Acceptance occurs by signifying conformity, failing to make an effective rejection after a reasonable opportunity to inspect, or doing any act inconsistent with the seller's ownership.
- Revocation of acceptance under section 2-608 requires a non-conformity that substantially impairs value and either a reasonable expectation of cure that was not made or acceptance induced by difficulty of discovery.
- Under section 2-612 an installment may be rejected only for a non-conformity that substantially impairs the value of that installment, and the whole contract is breached only where it substantially impairs the value of the whole.
Cure, Rejection, Revocation & Installment Contracts
I. Seller's Right to Cure Non-Conforming Tender (UCC § 2-508)
The harshness of the Perfect Tender Rule is balanced by the seller's statutory right to cure non-conforming tender under two distinct subsections of UCC § 2-508:
1. Cure Within Contract Time (UCC § 2-508(1))
- Rule: Where any tender or delivery by the seller is rejected because non-conforming, and the time for performance has not yet expired, the seller has an absolute right to cure.
- Requirements:
- Seller gives seasonable notice to the buyer of intention to cure; and
- Seller tenders a conforming delivery within the contractual deadline.
- Exam Trap: If delivery is due on October 15, seller delivers on October 5, and buyer immediately rejects for non-conformity, the buyer cannot cancel the contract. Seller has an absolute right to deliver conforming goods by October 15.
2. Cure Beyond Contract Time (UCC § 2-508(2))
- Rule: Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance, the seller may, if they seasonably notify the buyer, have a reasonable further time to substitute a conforming tender, even though the contract deadline has passed.
- "Reasonable Grounds to Believe": Established by:
- Prior course of dealing between the parties (e.g., buyer previously accepted minor cosmetic flaws);
- Trade usage and custom in the industry;
- Seller delivering a newer, superior, or updated model of the product.
II. Acceptance, Rejection & Revocation of Acceptance
The buyer's rights and procedural burdens change dramatically depending on whether the goods have been accepted.
1. Rejection (§§ 2-601, 2-602)
- Timing: Must occur within a reasonable time after physical delivery or tender.
- Notice: Buyer must seasonably notify the seller of rejection.
- Duty: Buyer must hold rejected goods with reasonable care at seller's disposition for a time sufficient to permit seller to remove them.
2. What Constitutes Acceptance (§ 2-606)
Acceptance occurs when the buyer:
- After a reasonable opportunity to inspect, signifies to the seller that the goods are conforming or that the buyer will take or retain them in spite of non-conformity;
- Fails to make an effective rejection after having had a reasonable opportunity to inspect; or
- Does any act inconsistent with the seller's ownership (e.g., reselling the goods, altering them, integrating them into manufacturing).
3. Legal Consequences of Acceptance (§ 2-607)
- The buyer must pay the contract rate for any goods accepted;
- The buyer can no longer reject the goods;
- The burden shifts to the buyer to establish any non-conformity or breach;
- The buyer must, within a reasonable time after discovery of breach, notify the seller or be barred from any remedy.
4. Revocation of Acceptance (UCC § 2-608)
Once a buyer has accepted goods, they can no longer reject under the Perfect Tender Rule. The buyer may revoke acceptance only if they satisfy the rigorous elements of UCC § 2-608:
| Element of Revocation (§ 2-608) | Legal Standard |
|---|---|
| 1. Substantial Impairment | Non-conformity must substantially impair the value of the goods to the buyer. (Subjective-objective test: evaluated in light of buyer's specific needs, but measured objectively). |
| 2. Justifiable Acceptance | Buyer must have accepted either: <br/>(a) On the reasonable assumption that the non-conformity would be cured and it has not been seasonably cured; OR <br/>(b) Without discovery, reasonably induced by the difficulty of discovery before acceptance (latent defect) or by seller's assurances. |
| 3. Timely Notice | Revocation must occur within a reasonable time after buyer discovers or should have discovered the ground for it. |
| 4. No Substantial Change | Must occur before any substantial change in condition of the goods which is not caused by their own defects. |
III. Installment Contracts: The Major Exception to Perfect Tender (UCC § 2-612)
Under UCC § 2-612(1), an installment contract is defined as one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even if the contract contains a clause stating "each delivery is a separate contract."
[!IMPORTANT] The Perfect Tender Rule Does NOT Apply to Installment Contracts: In installment contracts, the UCC adopts a standard akin to common law substantial performance, governed by substantial impairment rather than perfect tender.
- Rejection of an Individual Installment (§ 2-612(2)): The buyer may reject any installment only if the non-conformity substantially impairs the value of that installment and cannot be cured. If the non-conformity does not substantially impair the installment, or if the seller gives adequate assurance of its cure, the buyer must accept the installment.
- Breach of the Whole Contract (§ 2-612(3)): Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract, there is a breach of the whole. If it impairs only the particular installment, the aggrieved party cannot terminate the remaining installments.
A boutique clothing retailer entered into a written contract with an apparel manufacturer to purchase 500 silk designer blouses for $25,000, with delivery specified 'on or before November 15.' On November 1, the manufacturer delivered 500 blouses to the retailer. Upon immediate inspection, the retailer discovered that the buttons on the cuffs were clear plastic instead of the iridescent mother-of-pearl buttons specified in the contract. On November 2, the retailer promptly sent a written notice rejecting the entire shipment. On November 3, the manufacturer notified the retailer in writing that it had dispatched a courier to retrieve the blouses and would deliver 500 fully conforming blouses with mother-of-pearl buttons by November 12. The retailer replied that the contract was terminated for failure of perfect tender and that replacement shipments would be refused. On November 12, the manufacturer tendered 500 conforming blouses, which the retailer rejected. What are the legal rights of the parties?
A catering banquet hall purchased a commercial industrial dishwasher from a restaurant equipment distributor for $18,000. Following installation on June 1, the banquet hall inspected the exterior, verified that the cycle operated, and signed an equipment acceptance certificate. During the first two weeks of use, the dishwasher operated normally. In the third week, when the banquet hall ran consecutive high-temperature sanitizing cycles required during large weekend events, internal heating coils short-circuited due to a hidden manufacturing defect inside the sealed pump housing, causing the machine to leak scalding water and shut down. An independent technician determined that the pump housing defect was undetectable upon ordinary visual inspection and would cost $12,000 to replace with no guarantee of safety. On June 25, the banquet hall notified the distributor that it was revoking its acceptance of the dishwasher and demanding a full refund. The distributor refused, asserting that the banquet hall had accepted the machine and could not revoke. May the banquet hall revoke its acceptance under UCC § 2-608?