Contracts MBE Tip of the Day

Answer to the Contracts MBE Question

Subject: Contracts

Legal Issue: What actions may or must the fireworks company take, given the breach?

Legal Rule and Analysis: 

Under the UCC, the general rule for acceptance is the “perfect tender rule”. This rule states that the seller has to deliver perfect goods and if the goods fail to conform in any way the buyer can: reject all of them, accept all of them, or accept however many commercial units he wants and reject the rest. However, there is a special rule for installment contracts that supplants the general rule. An installment contract is any contract that requires or authorizes delivery in separate lots to be separately accepted. Here, we have an installment contract whereby there are two installments of 50 fireworks each. Under UCC § 2-612, the buyer can only reject an installment when the non-conformity substantially impairs the value of that installment and if it cannot be cured.  But, if non-conformity does not substantially impair the value of that installment and the seller gives adequate assurance of its cure “the buyer must accept that installment.” Here, delivery of 49 of the 50 fireworks does not substantially impair the value of the installment and the seller gave assurances that he could cure the non-conformity by delivering the last firework promptly. Therefore, the buyer must accept the installment. Furthermore, under UCC § 2-612 “[w]henever 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.” This breach may allow the buyer to cancel the entire contract under UCC § 2-711. However, in our facts, the buyer’s non-conformity of one firework did not substantially impair the entire contract in order to permit cancellation. Therefore, the buyer is also not permitted to cancel the contract, making answer (D) the correct answer.

Conclusion: The fireworks company must accept the 49 sets and may not cancel the rest of the contract.

Look at the answer choices provided. Choose an answer choice that matches your conclusion. Review the other answer choices provided.  (D) is therefore correct. (A) and (B) are both incorrect because the perfect tender rule does not apply to installment contracts. (C) is incorrect because the buyer may not cancel the entire contract.

MBE Tip: Contracts oftentimes tests nuances of the law. One way to remember how to distinguish concepts in contracts is by making charts or mindmaps of the material (e.g., comparing UCC and common law, or comparing, say “one-shot” deals and installment contracts). Specific rules only apply to specific concepts so making charts or mindmaps of the material can be a great way to remember it.