GFI, Inc., a Hong Kong company, makes audio decoder chips, an essential component in the manufacture of smart phones. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong, via Air Express.

At the time for the first delivery, GFI delivers only 2,400 chips. GFI explains, however, that although the shipment is 4 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more. Egan accepts the shipment and pays GFI the contract price. Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation