Installment Sale and the Imperfect Cure

Yes. Under UCC 2-207, Buyer's purchase order and Seller's acknowledgment formed a contract even though the forms differed. Buyer's 'acceptance limited to terms herein' did not prevent formation because Seller's acknowledgment was a definite expression of acceptance. The terms on which the writings agree govern. Seller's additional terms are proposals. Between merchants, they become part of the contract unless they materially alter it, are objected to, or cause surprise or hardship. The 5% late charge likely enters because it is an ordinary commercial term and Buyer did not object. The arbitration clause is more likely a material alteration because it changes the forum and waives judicial remedies; Buyer's silence is not enough. Thus a contract exists, but the arbitration clause probably does not bind Buyer. The price, quantity, delivery schedule, and late charge govern.

Seller's cure was probably ineffective. Under UCC 2-508, if the buyer rejects nonconforming goods and the contract time has expired, the seller may cure only if it had reasonable grounds to believe the goods would be acceptable and seasonably notified the buyer. Seller notified Buyer, but the replacements arrived 12 days after rejection and one day after the delivery window. That is likely not seasonable. The more important issue is the scope of Buyer's rejection. Under UCC 2-612, in an installment contract Buyer may reject an installment only if the nonconformity substantially impairs the value of that installment and cannot be cured. 200 cracked casings out of 2,500 is 8%; that is a minor defect that can be cured by replacement. Buyer therefore had to accept the installment and seek damages, not reject the whole. Seller's cure, even if late, may satisfy the contract if it was within a reasonable time and Buyer suffered no material prejudice. If the defect substantially impaired the installment, Buyer's rejection stands and Seller's late cure is ineffective.

Buyer cannot stop payment on the second installment merely because it disputes the third. Under UCC 2-717, Buyer may deduct damages from any amount still due under the contract, but it must give notice. The second installment conformed; Buyer must pay it, less any proven damages. For the third installment, if Buyer rightfully rejected, its remedy is cover under 2-712: the difference between the cost of cover and the contract price, plus incidental and consequential damages, including lost profits if foreseeable. If Buyer did not cover, it may recover the difference between market price and contract price under 2-713. Seller's price action under 2-709 may fail if Buyer rightfully rejected and Seller cannot resell. If the arbitration clause is enforceable, the dispute goes to arbitration; if not, litigation proceeds. The late charge applies only to late payments, not to wrongful withholding.