Natural gas is graded on the number of units of energy it produces upon combustion on a scale of one to 100. The higher the rating, the more heat is produced by a given quantity of gas. On November 15, a gas company agreed to sell 1,000,000 cubic feet of liquefied natural gas with a rating of 100 on the natural gas heat content index to an electric company for a total price of $750,000. The gas was to be delivered in liquefied form in five lots of 200,000 cubic feet at a time, because the utility’s storage capacity was limited to 300,000 cubic feet of gas. The five lots were to be delivered no later than March 1, and were to be used by the electric company to generate electrical power. Payment was to be made as follows: $250,000 on January 15, $150,000 on February 15, and $350,000 on March 15.
When the 190,000 cubic feet were delivered on January 25, the electric company discovered that it only rated 90 on the heat content index, which meant that it would take more gas to generate the same amount of electricity than gas with a rating of 100. The electric company needed some gas immediately, and it accepted 100,000 cubic feet of the shipment, which it used over the next month to produce electricity. The only effect of using it was that the cost of producing the electricity was higher because the heat content of the gas was low. In a suit by the gas company against the electric company for its action in rejecting the other 90,000 cubic feet of gas:
A. The gas company would prevail because the electric company waived the nonconformity when it accepted part of the shipment.
B. The gas company would prevail because the electric company had no right to reject any of the gas under the circumstances.
C. The electric company would prevail because the shipment was nonconforming in heat content.
D. The electric company would prevail because shipment was nonconforming in quantity.
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Answer B is correct. This is an installment contract governed by U.C.C. § 2-612, because it calls for a series of performances by the seller rather than a single performance. In an installment contract, the buyer can reject an installment that does not conform only if the installment substantially impairs the value of the goods to the buyer. The buyer under an installment contract does not have an unconditional right to reject nonconforming goods. In this situation, the value of the gas was not substantially impaired by the fact that its heat content was not 100. An adjustment in the price term to compensate the electric company because it had to burn more gas to generate a given amount of electricity was all that was required. Likewise, in an installment contract, a minor discrepancy in the amount delivered does not give the buyer a right to reject-a right which he would otherwise have if this was an entire contract.
Answer A is incorrect. This choice reaches the correct result for the wrong reason. Since the electric company had no right to reject the gas due to nonconformity under the circumstances, it could not waive this right. This is an installment contract governed by U.C.C. § 2-612 because it calls for a series of performances by the seller rather than a single performance. In an installment contract, the buyer can reject an installment that does not conform only if the installment substantially impairs the value of the goods to the buyer. The buyer under an installment contract does not have an unconditional right to reject nonconforming goods. In this situation, the value of the gas was not substantially impaired by the fact that its heat content was not 100. An adjustment in the price term to compensate the electric company because it had to burn more gas to generate a given amount of electricity was all that was required. Likewise, in an installment contract a minor discrepancy in the amount delivered does not give the buyer a right to reject-a right which he would otherwise have if this was an entire contract.
Answer C is incorrect. This is an installment contract governed by U.C.C. § 2-612. The electric company may not reject nonconforming goods unless the nonconformity substantially impairs the value of the installment. In this situation, the value of the gas was not substantially impaired by the fact that its heat content was not 100. An adjustment in the price term to compensate the electric company because it had to burn more gas to generate a given amount of electricity was all that was required. Likewise, in an installment contract, a minor discrepancy in the amount delivered does not give the buyer a right to reject-a right which he would otherwise have if this was an entire contract.
Answer D is incorrect. This is an installment contract governed by U.C.C. § 2-612. The electric company may not reject nonconforming goods unless the nonconformity substantially impairs the value of the installment. In this situation, a delivery of five percent less than was called for by the installment does not impair the value. The utility had no immediate need for the 10,000 cubic feet of gas which was not delivered in the installment. Moreover, the value of the gas was not substantially impaired by the fact that its heat content was not 100. An adjustment in the price term to compensate the electric company because it had to burn more gas to generate a given amount of electricity was all that was required.
c
b
answer b.
B.
D
B