Major State University, whose highly profitable athletic programs are known as the ShorthornsTM, has developed a book about the long and occasionally storied history of its athletic program, entitled Horns of Excellence. It contracts with Acme Publishing Co. to produce the book. The contract specifies that Acme will produce 400,000 copies of the book, which MSU plans to sell to alumni and friends. The books will be delivered in four lots of 100,000 each. The detailed contract specifications provide that the book's cover, which features a picture of one of its semi-legendary coaches, will be produced in Shorthorn OrangeTM, a kind of muddy brownish color that is the official trademarked color of the Shorthorns and is used for all uniforms, goods, and merchandise.

When the first 100,000 copies are delivered to MSU, the school is shocked to discover that the covers have been printed in Volunteer OrangeTM, a much brighter color that is the trademarked color of a rival university. MSU rejects the first 100,000 volumes. Acme says that it can change the color for the next shipments. MSU, furious, cancels the contract anyway and refuses to pay anything for the books. Acme sues. Evidence shows that not more than five out 100 Shorthorn fans can actually tell the difference between the two colors. Was MSU's rejection proper? Does it owe anything to Acme if Acme sues for nonpayment?