(a) A party shall perform in a manner that conforms to the contract.

(b) Except as otherwise provided in Section 2B-609(b), aA party's obligation to perform, other than with respect to contractual use restrictions, is contingent on the absence of an uncured material breach by the other party of obligations or duties that precedes in time the aggrieved party's performance.

(c) Tender of performance entitles a party to acceptance of that performance. A tender of performance occurs when a party, with manifest present ability and willingness to do so, offers to complete the performance. If a performance by the other party is due at the same time as the tendered performance, tender of the other party's performance is a condition to the tendering party's obligation to complete the tendered performance.

(e) A If a party that accepts a performance , the party shall pay or render any other consideration as required under the agreement for any performance it accepts. The burden is on the party that accepted the performance to establish a breach of contract with respect to the performance accepted.

b. Voted 10-3 to use mass market license, rather than consumer in this section.

c. Voted 1-7 to reject a motion to use the idea of perfect tender as the standard for the right to reject and cancel for breach in any performance of any type of contract term.

1. General Approach. This section brings together a number of general principles pertaining to performance of a contract. The provisions of the Section are supplemented and supplanted by sections dealing with the tender and acceptance (or refusal) of copies. The general approach follows that in the Restatement (Second) of Contracts. The provisions of this Article that deal with the treatment of tender and acceptance of copies are consistent with Article 2 and Article 2A, except that in this Article adopts the material breach theme of common law other than in the mass market.

2. Duty to Conform. Subsection (a) states as a generalized default rule the obvious principle that a party is obligated to conform to its contractual commitments. While the Article follows the common law material breach standard in most cases, that concept does not hold that a party need only substantially conform to its contract. Any failure to conform to the contract gives the aggrieved party a right to remedy under this Article and subject to concepts of waiver and the contrary terms of the contract.

Whether a particular performance conforms to the contract depends on the terms of the contract as interpreted and applied to the performance. General standards of interpretation consider the express terms of the agreement as understood in the commercial context.

3. Material Breach: General Standard. Subsection (b) adopts the doctrine of material breach (or substantial performance) for determining when a right to cancel, to refuse a performance, or to decline to perform in response arises in reaction to a breach of contract; that rule is applied throughout the Article except in certain mass market transactions. As is described in the Restatement, the rule holds that a duty to perform is contingent on the prior performance by the other party without a material failure of performance. Restatement. Restatement (Second) of Contracts § 237 states: "[It] is a condition of each party's remaining duties to render performances ... under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time." This is also the common law rule.

Subsection (b) makes clear that the contingent relationship does not refer to situations involving contractual use restrictions. A breach of a license by the licensor does not give the licensee unfettered rights to act in derogation of the licensor's ownership rights in the intellectual property and the use restrictions that these support.

The concept is simple: a minor (immaterial) defect in performance does not warrant rejection or cancellation of a contract. Minor problems constitute a breach, but the remedy lies in compensation for the lost value. The policy objective is to avoid undue forfeiture for small errors and to recognize that, especially if performance involves ongoing activity, fully perfect performance cannot be expected as a default rule. If the parties desire to create a more stringent standard, they must do so by the terms of their agreement.

Illustration 1: Tom Jones has agreed to develop systems software for DNY. DNY promises to pay the purchase price of $300,000 in three installments once every three months. Jones fails to complete stage 1 in month 2 and this failure is material. When the first payment is due, if the failure remains uncured, DNY is not required to pay. It can cancel the contract or seek assurances of performance. To alter this result would require an express agreement severing the obligation to pay from the performance of the deliveries.

The material breach rule does not hold that substantial (but imperfect) performance of a contract is not a breach. Substantial (but imperfect) performance is a breach. The significance of substantial performance lies in the remedy for the injured party. Unless a breach is material, it cannot be used as an excuse to void or avoid the contract obligations. A licensor that receives substantial (but imperfect) performance cannot cancel the contract on that account, but it can recover damages for the less than complete performance.

3. Material Breach: Other Law. In adopting a material breach concept, Article 2B parallels common law and modern international law of sales. The Convention on the International Sale of Goods (CISG) refers to "fundamental breach," which it defines as: "A breach ... is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person ... would not have foreseen such a result." CISG Art. 25. UNIDROIT Principles of International Commercial Law state: "A party may terminate the contract where the failure of the other party to perform an obligation under the contract amounts to a fundamental non-performance." UNIDROIT art. 7.3.1(1).

Article 2 and Article 2A stand alone in modern contract law in not using material breach theory (requiring so-called "perfect tender") but do so in only a single fact situation: a single delivery of goods not part of an installment contract. Outside that single context, materiality as a standard for when reciprocal performance is not required is virtually unanimous. Article 2B creates a parallel rule to Article 2 in reference to single delivery, mass-market transactions.

Article 2 applies a "perfect tender" rule to only one setting: the initial tender (transfer) of goods in a contract that does not involve installment sales. It does not allow the buyer to assert a failure of perfect tender in an installment contract (that is, a contract characterized by an ongoing relationship). Additionally, of course, the "perfect tender" rule is a misnomer even when applicable under Article 2. Even in a single delivery context, the idea that a performance must conform to the contract is hemmed in by a myriad of countervailing legal considerations. As a matter of practice, a commercial buyer cannot safely reject a tendered delivery for a minor defect without considering the rights of the vendor to cure the defect under the statute or under commercial trade use. White and Summers state: "[we found no case that] actually grants rejection on what could fairly be called an insubstantial non-conformity . . ." Indeed, one case involving software applied a substantial performance test to a UCC sales transaction. See D.P. Technology Corp. v. Sherwood Tool, Inc., 751 F. Supp. 1038 (D. Conn. 1990).

4. Material Breach: Mass Market. As described in Section 2B-609(b), Article 2B does not apply the material breach theme to mass market transactions involving tender of delivery of a copy other than in an installment contract setting. This adopts current Article 2 standards in this setting, including general concepts of cure, contract interpretation and course of performance that affect the determination of when the tender conforms to the contract. As in Article 2, this rule applies only to tender of a copy and the resulting duty to accept or right to refuse the tender that is the vendor's sole performance (e.g., delivery of a television set, delivery of the diskette containing the software).

5. Duty to Accept and Tender. Subsection (c) brings together general rules from the Restatement and current Article 2 regarding sequencing of performance. It is subject to the more specific rules on tender of delivery of a copy and acceptance of copies that are contained in Part B of this part of the Article.

The primary principle, found in both Article 2 and common law, is that tender of performance entitles the tendering party to acceptance of that performance. The rule is stated in general terms here, applicable to tenders of payment, of services, access, and of copies. Of course, if the tendered performance is a material breach, under subsection (b), the party receiving the tender is not required to perform its obligation because of an existing, uncured breach by the other party preceding in time its own performance duty. That principle is made explicit in subsection (d) with a cross reference to Section 2B-609(b) (which gives a right to refuse an non-conforming tender in some cases) and Section 2B-610 (which precludes refusing a delivery in an installment contract in some cases based on existing Article 2 language).

6. Refusing a Performance and Cancellation. An important distinction exists between the right to refuse a particular performance and the right to cancel the entire contract. That distinction is reflected in Article 2 and in common law; it is more central in Article 2B than in Article 2 because of the nature of the contracts involved.

A party may refuse a particular performance if the performance itself fails to conform to the contract and consists of a material breach as to that performance. Whether that breach and the resulting refusal also allows the aprty to cancel the entire contract depends on whether the breach is material as to the entire contractual relationship. In cases where the entire performance consists of a delivery of a single copy, of course, the right to refuse that c opy corresponds to the right to cancel the contract. In more complex situations, however, a single breach may not be material to the whole relationship. Thus, for example, a payment that is only one-half the required amount is most like a material breach as to that payment, but whether it also constitutes a material breach of the entire contract depends on the circumstances and the terms of the contract.

Current Article 2 Section 2-612 recognizes a similar distinction for installment contracts, but does not allow the buyer to reject the defective installment unless it is a material breach as to the whole. While Article 2B applies that same rule to cases involving installment deliveries of copies, that restriction on the licensee is not justified as a general principle for the range of performances covered by this Article.