Buyer and Seller’s Remedies for Insecurity/Insolvency
If a party has reasonable grounds for feeling insecure about the other party’s performance, they may demand adequate assurance the other party will perform and suspend performance until receipt of assurance
2-609(1)- when you make a contract, you not only promise to perform, but also implicitly promise not to impair the other person’s expectation you will perform
Standard for insecurity? very low: just a report from an apparently reliable source
If no adequate assurance is given? 2-609(4): after receipt of demand for assurance, failure to provide assurance w/in a reasonable time, not to exceed 30 days, is repudiation of the contract (treated as a breach- recover thru ordinary means)
CPMT v. Panama Canal- PC chartered tugboat from CPMT- option to purchase boat w/clear title; PCC heard CPMT had 3rd mortgage, wasn’t making payments on 1st mortgage from broker, said it’d w/hold payment until receipt of assurance; Held- PCC’s feeling of insecurity and request for assurance reasonable (didn’t have to exercise due diligence to find out if info true); PCC had a right to suspend performance
Seller’s remedies upon discovering buyer’s insolvency
refuse to deliver except for cash (even if contract requires otherwise), 2-702(1)
stop delivery (even if title has passed)
2-401(2)- when title passes from seller to buyer:
if seller responsible to get goods to carrier, title passes at start of shipment
reclaim goods already delivered, 2-702(2); seller must make reclaim for goods w/in 10 days (10 day period does not apply if buyer misrepresented solvency in writing w/in 3 mos. before contract was made)
what if buyer has sold them to another? 2-702(3) seller may still recover them unless they were bought in good faith
Definition of insolvency, 1-201(2):
have ceased to pay debts
have ceased to pay debts as they are due (may not have defaulted yet, but won’t be able to pay debts as they come due)
meet definition of insolvency under federal bankruptcy law: if your assets exceed your liability (total amount of $ you owe)
Ducks ex.- Motion Pix finds out that Robles leased the WW2 Duck to someone else; Motion may cover immediately, even before performance is due; Motion does have a duty to mitigate
by not providing assurance
retraction of a repudiation- buyer may retract a repudiation unless the seller treated it as final / took action in reliance
await performance, for a commercially reasonable amount of time
Oloffson v. Connor- Coomer to sell corn, 2 installments; repudiates; Oloffson proceeded as if no repudiation, then tried to charge Coomer $ to cover on each date of installment; Held- upon repudiation, Coomer could wait a commercially reas. time (here, none) or cover immediately; why? clear repudiation, easy to contract w/another; trade custom to pay diff. btw contract/market price date of repudiation
Cancellation of Installment Contracts
Seller’s Remedies when buyer breaches w/respect to one installment:
recover price of accepted goods (whether 1 or several installments)
suspend future deliveries until buyer provides adequate assurance
cancel remainder of contract if breach “substantially impairs the value of the whole”
“breach of the whole”: when a nonconformity substantially impairs value of the whole contract; whole contract should not be cancelled lightly
if only seller’s security is impaired, seller has a right to demand assurance, but not to cancel whole contract
Buyer’s Remedies when seller breaches w/respect to one installment:
accept installment and seek damages
reject installment and seek damages (if breach substantially impairs value of installment and cannot be cured)
suspend future payments until seller provides adequate assurance
cancel remainder of contract if breach substantially impairs the value of the whole
i.e. if 1st breach suggests there will be future breaches that can’t be cured
Graulich Caterer v. Hans Holterbausch- Graulich to provide microwavable meals for World Fair exhibit; 1st 2 installments not as warranted, Hans cancelled entire contract; Held- subst. impairment of whole contract, ok to cancel; time was of the essence, no time to wait for cure
Midwest Mobile Diagnostic v. Dynamics- Midwest to buy 4 trailers from Dynamics; 1st couldn’t be certified by MRI co. and wasn’t ‘attractive’; Held- grounds to cancel entire contract b/c 1st had substantial impairment and needed all 4 w/in period of time
perfect tender rule does not apply in installment contracts; can only reject if there hasn’t been substantial performance; defects in prior installments are cumulative in effect
