## Facts

- Midwest Mobile Diagnostic Imaging, L.L.C. (buyer) contracted to purchase four mobile MRI trailers from Dynamics Corporation of America, doing business as Ellis & Watts (seller), with delivery in separate installments.
- The trailers were required to meet Philips Medical Systems’ engineering and magnetic shielding specifications and to obtain Philips certification for use with the MRI equipment.
- The buyer also required an interior suitable for patient care, including an appearance consistent with hospital environments.
- The first trailer was delivered in late November 1995; during testing, Philips refused certification due to shielding-related structural problems that left walls subject to flexing.
- The seller attempted to address the problem by installing large interior steel beams/bracing; Philips treated this as temporary and still refused permanent certification with the bracing in place.
- The buyer inspected the modified trailer in mid-December 1995 and found the bracing aesthetically unacceptable and obstructive to servicing and operating the MRI equipment; the buyer rejected the tender.
- The buyer requested a permanent fix and assurances of future performance; the seller denied a true defect and maintained the modified trailer complied, without offering further cure.
- On December 18, 1995, the buyer canceled the entire four-trailer contract, citing continuing nonconformity, lack of a permanent cure, the need for Philips certification, and business disruption.
- The buyer sued for breach of contract and misrepresentation; the seller counterclaimed that the buyer wrongfully rejected and breached by canceling.

## Issues

1. Whether the buyer rightfully rejected the first installment because its nonconformity substantially impaired the value of that installment under UCC § 2-612.
2. Whether the nonconformity and the seller’s response substantially impaired the value of the whole contract, permitting cancellation of the entire installment contract under UCC § 2-612(3).
3. Whether the buyer’s cancellation constituted anticipatory repudiation and breach, entitling the seller to recover on its counterclaim.

## Decision

- The court, after a bench trial, entered judgment for the buyer on the core contract claims.
- The court held the buyer rightfully rejected the first trailer because the lack of Philips certification and the bracing’s functional and aesthetic effects substantially impaired the value of that installment.
- The court held the buyer lawfully canceled the entire contract because the seller’s failure to provide a conforming trailer and failure to give adequate assurances substantially impaired the value of the whole contract.
- The court rejected the seller’s counterclaim, finding the seller’s refusal to provide a conforming trailer or adequate assurances amounted to repudiation rather than breach by the buyer.
- The court awarded the buyer contract damages, including return of payments and consequential losses attributable to the breach.

## Legal Principles

- A contract calling for delivery in separate lots can be an installment contract governed by UCC § 2-612.
- Under UCC § 2-612(2), a buyer may reject a nonconforming installment if the nonconformity substantially impairs the value of that installment.
- Under UCC § 2-612(3), a buyer may cancel the entire installment contract when a nonconformity or default substantially impairs the value of the whole contract.
- “Substantial impairment” is assessed in light of the contract’s commercial purpose, including critical functional requirements and agreed third-party certification.
- A purported cure that is temporary, fails to achieve required certification, or materially conflicts with functional and agreed appearance requirements may be insufficient to require acceptance.
- A seller’s denial of defect coupled with refusal to provide adequate assurances of future conforming performance can support a finding of repudiation and justify cancellation.

## Conclusion

The court applied UCC § 2-612 to uphold the buyer’s rejection of a nonconforming first installment and its cancellation of the entire four-unit installment contract where the seller failed to deliver a Philips-certifiable trailer and refused to provide adequate assurances of a permanent, conforming cure.


Midwest Mobile Diagnostic Imaging, L.L.C. v. Dynamics Corp. of Am., 965 F. Supp. 1003 (W.D. Mich. 1997)