## Facts

- North American Lighting, Inc. (NAL) manufactured automotive headlamp assemblies and was required to conduct accurate daily “due care” photometric testing under Federal Motor Vehicle Safety Standard No. 108, within specified tolerances.
- NAL’s existing daily testing equipment permanently failed in 1989, prompting NAL to seek replacement equipment capable of meeting Standard 108 accuracy and reliability needs.
- Hopkins Manufacturing Corp. (Hopkins) produced photometric and headlight aiming devices and marketed a “Machine Vision System” (MVS) that it represented could measure light intensities and be modified to satisfy NAL’s due-care testing requirements.
- After demonstrations and repeated assurances that software and hardware upgrades would make the MVS suitable and that problems could be remedied, NAL agreed to purchase the MVS, paying most of the price while withholding about 10% pending completion of the upgrade.
- The installed MVS persistently failed to perform with the required accuracy and reliability; NAL accepted the system initially but repeatedly complained and sought fixes.
- Hopkins made ongoing attempts to cure (including engineering visits and software changes) and continued assuring NAL that the MVS could be made to work as promised.
- After extended unsuccessful repair efforts, NAL concluded the MVS could not be modified to meet Standard 108 needs and revoked acceptance, seeking return of the price paid (less the withheld amount).

## Issues

1. Whether NAL validly and timely revoked acceptance of the MVS under U.C.C. § 2-608, given NAL’s continued possession and Hopkins’s continuing assurances and repair attempts.
2. Whether, despite a valid revocation, Hopkins was entitled to an offset for the reasonable rental value of NAL’s use of the MVS before revocation.

## Decision

- The Seventh Circuit affirmed the judgment that NAL properly revoked acceptance and was entitled to a refund of the purchase price it had paid.
- The court rejected the argument that there was no actionable “nonconformity,” holding that the contract included Hopkins’s assurances that the upgraded MVS would meet NAL’s due-care testing requirements, which it ultimately could not.
- The court held revocation was timely because ongoing seller assurances and repeated repair attempts can extend the reasonable time for revocation.
- The Seventh Circuit reversed the denial of an offset and held NAL must pay Hopkins the reasonable rental value for the period NAL possessed and used the MVS before revocation.
- The case was remanded for determination of the reasonable rental value amount.

## Legal Principles

- Under U.C.C. § 2-608, a buyer may revoke acceptance when a substantial nonconformity is not cured and the goods ultimately fail to conform to contractual expectations, including seller assurances about post-delivery modifications.
- A buyer’s knowledge of a prototype’s initial limitations does not bar revocation when the undiscovered nonconformity is the product’s inability, after promised upgrades, to perform as contracted.
- The “reasonable time” for revocation may be extended when the seller provides continuing assurances of cure and repeatedly attempts repairs in response to buyer complaints.
- Even after effective revocation, a buyer may owe restitutionary compensation for beneficial use of the goods before revocation, measured by reasonable rental value.

## Conclusion

The Seventh Circuit held that NAL could revoke acceptance because the MVS never achieved the promised Standard 108 testing performance and Hopkins’s continuing assurances made NAL’s timing reasonable, but fairness required NAL to pay reasonable rental value for its pre-revocation use of the system, with the amount to be set on remand.


North American Lighting, Inc. v. Hopkins Mfg. Corp., 37 F.3d 1253 (7th Cir. 1994)