Cherwell-Ralli, Inc. v. Rytman Grain Co.
433 A.2d 984 (1980)
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Rule of Law:
Under the Uniform Commercial Code, a buyer's long-standing failure to pay for delivered instalments, culminating in the cancellation of a check tendered to cure arrearages, can substantially impair the value of the whole contract, constituting a breach that permits the seller to cancel the contract without first demanding adequate assurance of performance.
Facts:
- Cherwell-Ralli, Inc. (seller) and Rytman Grain Co., Inc. (buyer) entered into an oral instalment contract for the sale of meal products, with payments due ten days after each delivery.
- From the beginning of the contract, Rytman was consistently late with its payments.
- On April 15, 1975, Rytman expressed concern about Cherwell-Ralli's ability to make future deliveries; Cherwell-Ralli's president verbally assured Rytman that deliveries would continue if Rytman paid its outstanding balance.
- Following this conversation, Rytman sent Cherwell-Ralli a check for $9,825.60 to cover shipments made through March 31, 1975.
- On April 23, 1975, Rytman stopped payment on the check after hearing a rumor from a truck driver not employed by Cherwell-Ralli that the current shipment would be the last.
- After learning of the stopped check, Cherwell-Ralli made no further deliveries.
- In letters dated April 28, 1975, Cherwell-Ralli demanded payment, and Rytman, for the first time in writing, demanded adequate assurance of future deliveries.
- Rytman made no further payments for the nineteen accepted shipments for which balances were outstanding.
Procedural Posture:
- Cherwell-Ralli, Inc. (plaintiff) sued Rytman Grain Co., Inc. (defendant) in a Connecticut trial court for nonpayment for delivered goods.
- Rytman Grain Co., Inc. conceded the debt but filed a counterclaim for damages, alleging that Cherwell-Ralli, Inc. had breached the contract by refusing to make future deliveries.
- The trial court referee found all issues in favor of the plaintiff, Cherwell-Ralli, Inc., and entered judgment accordingly.
- The defendant, Rytman Grain Co., Inc., appealed the trial court's judgment to the reviewing court.
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Issue:
Does a buyer's history of late payments, followed by stopping payment on a check intended to cover past-due deliveries, substantially impair the value of an entire instalment contract under UCC § 2-612, justifying the seller's cancellation of future deliveries?
Opinions:
Majority - Peters, J.
Yes, the buyer's conduct substantially impaired the value of the whole contract. A buyer's failure to pay, particularly the uncured stoppage of a check, is sufficiently egregious conduct to constitute a breach of the entire contract, which allows the aggrieved seller to cancel remaining performance under UCC § 2-703(f). The court rejected the buyer's argument that a seller must first seek adequate assurance under UCC § 2-609 before cancelling. While that section provides a remedy for a party with reasonable doubts, it is not a mandatory prerequisite to cancellation when a buyer's breach is so severe that it substantially impairs the contract's value. Furthermore, the buyer had no reasonable grounds for insecurity; a party cannot rely on its own non-performance (failure to pay) as a basis for its insecurity regarding the other party's future performance. The buyer had received all goods ordered and was acting on an unreliable rumor.
Analysis:
This case clarifies the interplay between UCC § 2-612 (Instalment Contract Breach) and § 2-609 (Adequate Assurance). It establishes that a breach can be so substantial that it obviates the need for the aggrieved party to seek adequate assurance before cancelling the contract. The decision gives sellers a direct right to cancel in the face of egregious non-payment, like stopping a check, without having to temporize by demanding assurance. This protects sellers from being strung along by unreliable buyers and confirms that a party cannot use its own defaults to create a legally cognizable 'insecurity' about the other party's performance.
