Kunian v. Development Corporation of America
334 A.2d 427, 1973 Conn. LEXIS 739, 165 Conn. 300 (1973)
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Rule of Law:
Under the Uniform Commercial Code, a buyer's repeated failure to make timely installment payments for accepted goods, particularly when coupled with a refusal to provide adequate assurance of performance upon a justifiable demand, constitutes a material breach that excuses the seller from further performance.
Facts:
- On March 18, 1969, A. Merowitz and Company, Inc. (plaintiff, supplier) contracted with Development Corporation of America (defendant, builder) to provide plumbing and heating materials for the Church Street South project.
- The contract stipulated specific payment dates (25th and 10th of the month) for delivered materials, with a 2% discount for timely payment, and included a 'guaranteed complete list' of materials.
- Merowitz began deliveries and invoiced Development Corporation at cost plus a 5% broker's fee, a method known and accepted by Development Corporation despite being different from the attached list prices.
- The 'guaranteed complete list' was not exhaustive, and many delivered items were either not on the list or were architect-approved substitutions.
- Between March and October 1969, Development Corporation accepted deliveries but accumulated an unpaid balance; after October, Merowitz continued deliveries, and by November 26, 1969, the unpaid balance rose to approximately $38,000.
- On December 12, 1969, Development Corporation promised to make payments in January 1970 if Merowitz continued deliveries; Merowitz relied on this promise and continued, but no payments were made.
- In January 1970, Development Corporation began purchasing materials from another supplier and demanded Merowitz deliver the remaining contract balance without offering to pay its existing debt.
- Merowitz requested payment guarantees (cash in escrow) due to the large outstanding debt, which Development Corporation refused by January 27, 1970, leading Merowitz to cease deliveries.
Procedural Posture:
- A. Merowitz and Company, Inc. (plaintiff) initiated an action against Development Corporation of America and DCA Builders, Inc. (defendants) by writ dated February 3, 1970, claiming damages for unpaid deliveries.
- Subsequently, A. Merowitz and Company, Inc. was adjudicated bankrupt, and Stephen Kunian was appointed trustee in bankruptcy and substituted as the party plaintiff in November 1970.
- A state referee, exercising the powers of the Superior Court (trial court), rendered judgment in favor of the plaintiff, Stephen Kunian, trustee, awarding $32,164.94 plus interest for breach of contract.
- Both the defendants (as appellants) and the plaintiff (as cross-appellant) appealed this judgment to the Supreme Court of Connecticut.
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Issue:
Does a buyer's repeated failure to make timely payments for delivered installments in a divisible contract, coupled with its refusal to provide adequate assurance of performance when requested, constitute a material breach excusing the seller from further contractual obligations under the Uniform Commercial Code?
Opinions:
Majority - MacDonald, J.
Yes, a buyer's repeated failure to make timely payments for delivered installments in a divisible contract, combined with its refusal to provide adequate assurance of performance when requested, constitutes a material breach excusing the seller from further contractual obligations under the Uniform Commercial Code. The court determined the contract, involving piecemeal delivery of movable goods, was an installment contract governed by the UCC (§42a-2-101 et seq.). The payment terms established specific due dates, and the 2% discount was an incentive for prompt payment, not an option to delay payment until completion of all deliveries. The contract was divisible, meaning Merowitz's performance of each part was the agreed exchange for Development Corporation's timely payment. Although initiating a lawsuit for past installments might, under §42a-2-612(3), reinstate a contract, Development Corporation's accumulated unpaid balance, broken promises of payment, and demand for further deliveries without resolving outstanding debt gave Merowitz 'reasonable grounds for insecurity.' Consequently, Merowitz was justified in demanding adequate assurance of due performance. Development Corporation's subsequent failure to provide such assurance (e.g., cash in escrow) within a reasonable time constituted a repudiation of the contract under §42a-2-609(1) and (4), excusing Merowitz from further performance. The court also clarified that the 'guaranteed complete list' was not a literal guarantee that no other materials would be needed or charged, especially given the practical impossibility of a truly complete list for a project of that magnitude; rather, Merowitz guaranteed to supply all necessary materials for the total contract price, with substitutions chargeable at reasonable value. Development Corporation's knowledge and acceptance of Merowitz's invoicing method (cost plus broker's fee) from the outset also mitigated any claim of breach due to pricing discrepancies. The measure of damages for accepted goods was the contract price for listed items and reasonable value for non-listed or substituted items, consistent with an 'action for the price' under UCC §42a-2-709(1).
Analysis:
This case significantly clarifies the application of the Uniform Commercial Code to installment contracts, affirming that a buyer's persistent payment defaults are material breaches. It underscores a seller's right to demand adequate assurance of performance when experiencing reasonable grounds for insecurity, protecting sellers from further losses in ongoing contracts. The ruling also offers practical guidance on interpreting potentially ambiguous contract terms, such as 'guaranteed complete lists,' by acknowledging commercial realities like the practical impossibility of exhaustive itemization in large projects. Future cases will cite this precedent when assessing when a buyer's financial conduct justifies a seller's suspension or cessation of performance and in interpreting the scope of material guarantees in construction supply contracts.
