## Facts

- Phoenix Color Corporation, a commercial printer, contracted with Krause America, Inc., a distributor of computer-to-plate (CTP) printing systems, for the purchase and installation of eight CTP units at multiple Phoenix facilities.
- The pricing included substantial discounts tied to Phoenix purchasing all its CTP equipment from Krause, and the parties set a coordinated delivery schedule for the eight units.
- Krause delivered and installed the first three units; the units experienced chronic malfunctions and repeated failures that disrupted Phoenix’s production.
- Despite multiple service attempts, Krause did not cure the performance problems, and Phoenix asserted the first three units were defective and unfit for ordinary use.
- Phoenix asked Krause to take back the first three units; Krause refused.
- Phoenix notified Krause it would not accept delivery of the remaining five units and sought to end the overall arrangement; Krause contended Phoenix remained obligated to accept and pay for the remaining units.

## Issues

1. Whether the parties’ multi-document purchase of eight CTP units constituted a single installment contract under UCC § 2-612 rather than eight independent contracts.
2. Whether partial summary judgment was proper that the first three units were defective and breached the implied warranty of merchantability under UCC § 2-314.
3. Whether sufficient evidence supported the jury’s finding that nonconformities in the first three units substantially impaired the value of the whole contract, justifying cancellation of remaining installments under UCC § 2-612(3).
4. Whether the damages award, jury instructions, evidentiary rulings, and rejection of Krause’s anticipatory-breach counterclaim warranted reversal.

## Decision

- The Fourth Circuit affirmed the district court’s judgment for Phoenix.
- The court upheld the ruling that the transaction was an installment contract governed by UCC § 2-612.
- The court upheld partial summary judgment that the first three units were defective and breached the implied warranty of merchantability.
- The court held the evidence supported the jury’s finding of substantial impairment of the whole contract and Phoenix’s cancellation of the remaining installments.
- The court found no reversible error in the damages award, jury instructions, or evidentiary rulings, and rejected Krause’s counterclaim for anticipatory breach.

## Legal Principles

- A sale may constitute a single installment contract under UCC § 2-612 when the parties’ dealings show an integrated, multi-delivery arrangement (including coordinated scheduling and pricing conditioned on purchasing the full set), even if separate writings describe individual units.
- Under UCC § 2-314, goods breach the implied warranty of merchantability when undisputed evidence shows chronic defects rendering them unfit for ordinary purposes; the issue may be resolved on summary judgment when no genuine dispute of material fact exists.
- Under UCC § 2-612(3), a buyer may treat an installment contract as breached in its entirety and cancel future deliveries when nonconformities in one or more installments substantially impair the value of the whole contract; substantial impairment is typically a jury question.
- If the buyer is justified in canceling under UCC § 2-612(3), the seller’s claim that the buyer’s refusal to accept future installments is an anticipatory breach fails.

## Conclusion

The Fourth Circuit treated the eight-unit CTP purchase as a single installment contract and affirmed judgment for Phoenix because undisputed defects in the first three units breached merchantability and the jury reasonably found those defects substantially impaired the value of the entire agreement, permitting cancellation of the remaining deliveries and supporting the damages award.


Phoenix Color Corp. v. Krause Am., Inc., 25 F. App’x 133 (4th Cir. 2001)