Buyer Rejection Under the Uniform Commercial Code

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  • 0:01 UCC Article 2
  • 1:20 Perfect Tender Rule
  • 2:30 Buyer's Rejection
  • 5:01 Installment Contracts
  • 7:36 Lesson Summary
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Lesson Transcript
Instructor: Ashley Dugger

Ashley is an attorney. She has taught and written various introductory law courses.

The Uniform Commercial Code's Article 2 covers contracts for the sale of goods, including the buyer's obligations. This lesson explains how and when a buyer may reject goods.

UCC Article 2

Meet Morty. Morty owns Morty's Market, a small grocery store. Morty's business involves buying goods in order to stock his store and selling goods to customers. Many businesses, like Morty's, involve the sale of goods, or movable property. For businesses like Morty's, it's helpful to be familiar with the Uniform Commercial Code, or UCC. The UCC is a uniform act that covers sales and other commercial transactions.

The UCC is a guide. It's a set of model laws meant to encourage uniformity and consistency between state laws. All 50 states have enacted at least portions of the UCC. This means that state laws regarding commercial contracts aren't exactly alike, but they are similar.

Morty will mostly want to be familiar with the UCC's Article 2, entitled Sales. This article is extensive and addresses contracts for the sale of goods. Morty needs a general knowledge of the provisions since his business buys and sells goods.

Perfect Tender Rule

Among many other things, Article 2 addresses how and when a buyer may reject goods. Let's say that Morty orders 100 prepared meatloaves from Mark, his meat supplier. Morty orders two-pound meatloaves, but the meatloaves Mark delivers are three-pound loaves.

Using general contract law principles, Mark substantially performed his agreement with Morty because he supplied usable meatloaves in a timely manner. Though not exactly what Morty asked for, the meatloaves fit his needs and he can use them just as well. Mark hasn't breached the contract.

However, Article 2 treats this situation differently. For contracts involving the sale of goods, Mark must follow the perfect tender rule. This means that Mark must deliver goods that precisely meet the terms of the contract. The goods must be perfect, or exact, to what Morty ordered. Let's take a look at Morty's options.

Buyer's Rejection

Under Article 2, if the goods 'fail in any respect to conform to the contract,' then the buyer can reject the goods. Rejection simply means that the buyer refuses, or doesn't keep, the goods. There are four general rules regarding rejection:

  • A rejection must occur within a reasonable time after the delivery of the goods.
  • The buyer must promptly notify the seller of the rejection.
  • The buyer must give the seller an opportunity to correct the problem with the goods.
  • The rejection must occur before the buyer accepts the goods.

Under the UCC, we know that Morty can't reject the meatloaves if he already accepted them. Morty, therefore, needs to know what constitutes acceptance. Article 2 defines acceptance very broadly, stating that a party can accept an offer in 'any manner and by any medium reasonable in the circumstances.'

What constitutes acceptance varies by state, by the type of contract, and by the parties' circumstances. Acceptance can occur in many different ways, but will fall under at least one of these general categories:

  • The buyer signifies that the goods are conforming after a reasonable opportunity to inspect them.
  • The buyer signifies that he or she will retain the goods, even if they are nonconforming.
  • The buyer has a reasonable opportunity to inspect the goods and fails to reject the goods.
  • The buyer treats the goods in a way that is inconsistent with the seller's ownership.

Let's say that Mark delivers the three-pound meatloaves to Morty. Morty opens one of the boxes that same day and notices the meatloaves are not what he ordered. Morty doesn't remove the packaging from the meatloaves or stock them in his market. Instead, he calls Mark to tell him.

Mark tells Morty that he cannot get two-pound meatloaves and that's why he sent the three-pound loaves. Morty hasn't accepted Mark's delivery and followed all of the UCC rules for rejecting the goods. Morty may now choose whether to accept or reject the three-pound loaves.

Installment Contracts

Now let's take a look at a different scenario. Let's say that Morty orders 100 meatloaves from Mark, but this time, the meatloaves will be delivered in installments. Mark will deliver 20 meatloaves a week for the next five weeks. Morty will pay $5 per meatloaf, or $100 per week upon delivery of the goods.

This is an installment contract. An installment contract is based on periodic performances over a specific length of time. In an installment contract for the sale of goods, deliveries are made as a series rather than all at once.

A buyer's right of rejection works differently in an installment contract, because the perfect tender rule doesn't apply to installment contracts. Let's say Mark delivers an installment of 20 meatloaves, but the meatloaves are three-pounds rather than two-pounds.

Morty can reject the installment, but only if the delivery substantially impairs the value of that installment and if Mark can't correct the problem with the goods. If the nonconformity is not substantial, or can be fixed by Mark, then Morty must accept the nonconforming installment. However, Morty can sue Mark to recover any money damages he sustains as a result of the nonconforming installment.

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