Are you a 'perfect tender'?

Under the Uniform Commercial Code (UCC), you, as a seller of castings, must comply exactly to the product specifications when tendering your castings to a buyer. This is known as the "perfect tender rule." There are a number of qualifications to this role, but the UCC still provides that a buyer may reject tendered goods if they "fail in any respect to conform to the contract."

This column takes a look at drafting product specifications, and suggests some considerations to help avoid later disputes over product specification compliance.

Drafting the Specs

You can avoid a disagreement over specification compliance by being precise in drafting those specifications. While the buyer has an interest in making the specifications as precise as possible, the seller wants some room for a margin of error to avoid rejection for minor deviations. Often, the compromise is found by referring to generally accepted standards, such as those of ASTM or ANSI. They can be incorporated by reference into the contract or purchase order, becoming as binding as if they were specifically recited in the document. Generally well-known and respected in the metals industry, the standards can help prevent disputes over whether a product met the contract standard. As is common foundry practice, where there is no standard available, a tolerance may substitute.

Where specifications are complicated and are set forth over a series of pages in a formal contract, it may be necessary to go through and initial each and every page of the detailed specifications. While this may seem time consuming and unnecessary, it can be very valuable if a later dispute arises. In that situation, it is difficult for either party to a contract to contend it didn't understand the details of the specification, and the dispute will then be limited to whether the product did in fact meet specifications.

When working with the buyer to draft the product specifications, it is important to designate where each specification fits in the "order of priority." Contracts will frequently identify an order of priority in the event of a conflict between the specifications and other contract documents, such as drawings. In the contract for a cast part, where its performance will turn on compliance with specifications, both foundry and customer should agree on the order of priority of the documents.

Finally, it is important to clearly distinguish between specifications for design and those for performance. Design specifications set forth the particular standard the product must meet (dimensions, weight, etc.). Having met these standards, the casting must be accepted by the buyer.

On the other hand, the performance specifications require that the product perform to a certain standard. When performance standards are involved, it is important to set forth a protocol for determining compliance. The details of the protocol should include the time, location and conditions of the testing, and all of the specific test objectives to measure desired product quality. If, for example, a certain casting needs to be airtight and free from leaks, the buyer would naturally want to test it to determine that it meets these performance specifications. The foundry that supplied the part should know not only where and when it is to be tested for these qualities, but whether the test will be pressure-decay or bubble. The same would apply to castings that must perform load-bearing functions.

Acceptance or Rejection

As stated above, the UCC allows a buyer to reject goods if the tender fails "in any respect to conform to the contract." There are a number of qualifications to this right of rejection. First, this provision does not apply to installment contracts, in which goods in separate lots are to be separately accepted. A particular installment can only be rejected if the nonconformity "substantially impairs the value of that installment," and if it cannot be "cured." If it can be cured; the buyer must accept the installment if the seller provides "adequate assurance" that it will be cured. Second, if the nonconformity is discovered before the agreed-upon delivery date, the seller has a right to cure the defect if this can be done within the original time frame. Third, the buyer, in rejecting the goods, must notify the seller of the rejection within a reasonable time, in a reasonable manner, and with the specifics of the defect. Failure to do this could operate as a waiver of the right to reject the goods.

In some instances, the buyer is granted the right to revoke his original acceptance of the goods. This would usually be where a latent defect is discovered that was not readily apparent on inspection. This right to revoke requires that the defect substantially impair the value of the goods.

As mentioned above, the seller has a right to cure any defect and retender the goods to the buyer in the event of an initial nonconformity. If the buyer wrongfully rejects the goods or revokes acceptance, the seller has a number of recourses, including withholding delivery, reselling the goods, canceling the contract or (infrequently) recovering the entire price of the contract if resale of the goods has not been possible. As a practical matter, the cure option is normally the best, since it avoids future disputes and the aggravation of trying to collect any recoverable damages. in some instances, legal action is necessary where the product specifications are not sufficiently clear to avoid confusion, or where the buyer misunderstands its rights and remedies under the perfect tender rule.

Thus, it is important to remember that you as the casting seller must provide parts that conform to the contract in all respects. But remember, too, that the rule is not one of personal satisfaction for the buyer, but a requirement of compliance with the contract.