Hope's Architectural Products v. Lundy's Construction
781 F. Supp. 711 (1991)
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Rule of Law:
Under the Uniform Commercial Code § 2-609, a party that is already in breach of a contract is not entitled to demand adequate assurances of performance from the non-breaching party. Furthermore, any assurances demanded must be commercially reasonable and cannot be excessive or attempt to rewrite fundamental terms of the contract, such as payment.
Facts:
- On June 29, 1988, Hope's Architectural Products (Hope's) contracted to manufacture and deliver custom windows to Lundy's Construction (Lundy's) for a school project for $55,000.
- Based on Hope's receipt of approved shop drawings on July 18, 1988, the contractual delivery date for the windows was no later than October 24, 1988.
- Hope's experienced production delays and did not ship the windows until October 28, 1988, after the delivery deadline had passed.
- On November 1, 1988, a representative for Lundy's discussed a potential 'back charge' with Hope's for costs associated with the late delivery.
- In response, Hope's first demanded assurances that Lundy's would not impose any back charges for the delay.
- On November 3, 1988, Hope's escalated its demand, insisting that Lundy's prepay the full $55,000 contract price before Hope's would deliver the windows, which were then in transit.
- Lundy's refused to prepay, and Hope's subsequently withheld delivery of the windows.
- On November 7, 1988, Lundy's terminated its contract with Hope's.
Procedural Posture:
- Hope’s Architectural Products sued Lundy's Construction for breach of contract and quantum meruit, and sued Bank IV Olathe on a public works bond.
- The case was filed in the United States District Court for the District of Kansas, which acted as the trial court.
- A bench trial was held before the court on December 4 and 5, 1991.
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Issue:
Does a seller that has already breached a contract by failing to make a timely delivery have the right under U.C.C. § 2-609 to suspend performance and demand assurances that the buyer will not seek damages for the delay and will prepay the entire contract price?
Opinions:
Majority - Judge Lungstrum
No. A seller that is already in breach of a contract by failing to deliver goods on time cannot invoke U.C.C. § 2-609 to demand assurances of performance from the non-breaching buyer. The court reasoned that Hope's was already in breach when it made its demands because delivery was late. A party cannot use § 2-609 to coerce the non-breaching party into waiving its right to damages for the breach. Furthermore, the court found Hope's demands were independently unreasonable; the demand for a blanket waiver of all delay costs was overly broad, and the demand for full prepayment was an excessive attempt to rewrite the contract's payment terms, as Lundy's had given no indication it was unable or unwilling to pay. Lundy's threat of a back charge was a legitimate exercise of its right to deduct damages under U.C.C. § 2-717, not a basis for insecurity. Therefore, Hope's wrongful suspension of delivery and unreasonable demands constituted its own repudiation, justifying Lundy's cancellation of the contract.
Analysis:
This case significantly clarifies the application of U.C.C. § 2-609 by establishing a critical limitation: a party already in default cannot use the statute's 'adequate assurance' provision as a shield against the consequences of its own breach. It sets a precedent that the right to demand assurance is a tool for an insecure but performing party, not a weapon for a breaching party to escape liability. The decision also provides valuable guidance on what constitutes commercially unreasonable and excessive demands, reinforcing that § 2-609 cannot be used to force a material modification of contract terms, such as changing progress payments to full prepayment, absent a clear indication of the other party's inability to pay.
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