You have three and one-half (3.5) hours to answer the questions on this examination.

The examination is divided into two segments: a short-answer segment and an essay-question segment. Read carefully the directions at the beginning of each segment. The directions tell you how much space in the bluebook you are entitled to use. They will also tell you how much weight I will give each question when calculating the grade for this examination. Allocate your time accordingly.

This examination is an open-book exam. You may bring to the examination room any written materials except materials checked out from the law library.

Assume that the 1995 official text of the Uniform Commercial Code is in force in all relevant jurisdictions unless otherwise expressly indicated. Where the text sets out alternate provisions (e.g.,  9-401(1)), assume that the second alternative is in force.

Read the questions carefully and organize your answer before you begin to write. Emphasize those points you think are most significant. If you find an ambiguity in the statement of facts or if you need more facts, make reasonable assumptions and state them clearly. Be concise. Be clear. Good luck!

In January 1997 Gyrotex agreed to sell 14,400 gyroscopes to Aerospatiale for use in Aerospatiale's navigation units for airplanes and boats. The gyroscopes were scheduled to be delivered by truck "F.O.B. Seller's Plant" in three equal shipments on or before May 15, July 15, and September 15, 1997. The agreed total purchase price was $750,000. Payment was to be made for each shipment upon delivery of that shipment. The written sales contract set out performance specifications.

Gyrotex sent the first shipment by truck on May 12. Aerospatiale immediately paid for this shipment. On June 13, Aerospatiale's quality control department reported to management that 20 percent of the first shipment of gyroscopes did not conform to the performance specifications set out in the contract. Aerospatiale immediately informed Gyrotex.

After several unsuccessful attempts to cure the defects in the gyroscopes from the first shipment, Aerospatiale asked Gyrotex by a letter dated July 5 to supply new gyroscopes. A Gyrotex representative visited the Aerospatiale plant on July 10 and confirmed that the gyroscopes did not conform to the performance specifications. The Gyrotex representative refused, however, to supply new gyroscopes, claiming that the performance specifications were "inadvertently" included in the written contract. This was confirmed by a letter from Gyrotex to Aerospatiale dated July 15.

In the meantime, Gyrotex sent the second shipment of gyroscopes on July 14. When the second shipment arrived the following day, Aerospatiale placed the new gyroscopes (together with all the gyroscopes from the first shipment) in a warehouse without inspecting them. Aerospatiale did not pay for this second shipment.

In a faxed letter dated July 23, Aerospatiale "canceled" the contract. Gyrotex responded with a letter dated July 25 stating that the cancellation was not justified but making no offer to make a substitute tender.

On August 15, Aerospatiale entered into a contract with Tonka, another supplier, to purchase 14,400 gyroscopes meeting the performance specifications set out in the Gyrotex contract documents. The total purchase price was $900,000. Delivery was to be made in three equal shipments "F.O.B. Buyer's Plant" on October 1, November 1, and December 1, 1997. Payment for each shipment was to be made upon delivery of that shipment. Because Aerospatiale would not receive delivery before October 1, Aerospatiale was forced to close its plant for the month of September.

Aerospatiale consults you. It asks what contract remedies, if any, it has against Gyrotex. Advise Aerospatiale.

1. The problem is inspired by the facts in Delchi Carrier SpA v. Rotorex Corp., 10 F.3d 1024 (2d Cir. 1995), a case governed by the U.N. Sales Convention rather than the Uniform Commercial Code.

2. Did Aerospatiale justifiably cancel the installment contract? Section 2-612(3) states that there is a breach of the whole contract when non-conformity of a single installment substantially impairs the value of the whole. Twenty per cent of the gyroscopes in the first installment did not meet contract specifications. Notwithstanding Gyrotex's "inadvertent" mistake, the signed agreement included the specifications. The first installment therefore was non-conforming with the terms of the contract. Twenty per cent would appear to be a substantial impairment in the value of the first installment, but it is less likely to be an impairment of the whole contract unless one accepts the argument that confidence in precision instruments has been shaken by the substantial number of defective gyroscopes.

There is the further problem under section 2-612(3) that Aerospatiale reinstates the contract if it accepts the first installment without seasonably notifying Gyrotex of cancellation. Arguably, Aerospatiale accepted the first installment when, after a reasonable opportunity to inspect them, Aerospatiale failed to reject them effectively. For there to be an effective rejection Aerospatiale must reject within a reasonable time after delivery of the gyroscopes and must seasonably notify Gyrotex. U.C.C.  2-606(1)(b), 2-602(1). The one-month period (May 12-June 13) after delivery of the first installment may not be justified by the difficulty of inspection. Aerospatiale also delayed in giving notice of rejection, which was not given until July 15, although notice that there were problems with the delivery was given immediately upon learning of the defective installment. In any event, Aerospatiale did not give notice of cancellation until July 23, more than a week after giving a notice of rejection. As a result, Aerospatiale may have reinstated the contract because the notice is not seasonable.