Scott v. Crown
765 P.2d 1043 (1988)
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Rule of Law:
Under UCC § 2-609, a party suspending performance due to insecurity must make a procedurally proper demand for adequate assurance. A demand that is not in writing, is not clearly communicated, or requests performance beyond the contract's terms is ineffective, and the suspending party's actions may constitute an anticipatory repudiation.
Facts:
- Larry Scott (Seller) and Dennis Crown (Buyer) entered into three contracts (No. 76, 78-2, 81-3) for the sale of wheat.
- The contracts stipulated that full payment was due 30 days after the seller completed delivery of the total quantity for each respective contract.
- By March 13, 1983, Scott had fully delivered the wheat for Contract No. 76, making payment due on April 13, 1983.
- Scott began delivering wheat for Contract No. 78-2 but ceased performance on March 15, 1983.
- Scott grew concerned about Crown's ability to pay after his banker and a Department of Agriculture agent advised him of active complaints against Crown.
- Scott refused to load more grain onto Crown's truck, telling the driver only that he wanted to 'settle some questions' with Crown.
- On April 6, 1983, Scott's attorney sent a letter to Crown demanding immediate payment for all wheat already delivered under contracts 76 and 78-2 as an assurance of performance.
- On April 7, 1983, Crown responded by cancelling the remaining contracts, No. 78-2 and 81-3.
Procedural Posture:
- Larry and Vera Scott (Seller) filed a lawsuit against Dennis Crown (Buyer) in a Colorado trial court for breach of contract.
- Crown filed a counterclaim against Scott.
- The trial court found in favor of Scott and dismissed Crown's counterclaim.
- Crown, as the appellant, appealed the trial court's judgment to the Colorado Court of Appeals.
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Issue:
Under UCC § 2-609, does a seller's oral statement to a buyer's driver, followed weeks later by a written demand for payment not yet due under the contract, constitute a valid demand for adequate assurance that justifies suspending performance?
Opinions:
Majority - Plank, J.
No. A seller's vague oral statement followed by a written demand for performance exceeding the contract's terms is not a valid demand for adequate assurance under UCC § 2-609, and suspending performance under such circumstances constitutes an anticipatory repudiation. Although the trial court correctly found that Seller had reasonable grounds for insecurity, his demand for assurance was procedurally defective. UCC § 2-609 generally requires a demand to be in writing. While an oral demand may suffice in rare cases with a clear pattern of interaction showing mutual understanding, Seller's vague statement to a driver did not meet this standard. Furthermore, the subsequent written demand was improper because it insisted on accelerated payment, which amounted to forcing a modification of the contract's original terms. A demand for assurance cannot be used to alter the bargain. Because Seller suspended performance without making a valid demand, his actions constituted a breach of contract by anticipatory repudiation, giving Buyer the right to cancel.
Analysis:
This case serves as a critical clarification of the procedural requirements of UCC § 2-609. It establishes that having reasonable grounds for insecurity is only the first step; the insecure party must then make a procedurally sound demand for assurance to rightfully suspend performance. The court narrowly construes the exception for oral demands and strictly prohibits using the assurance mechanism to rewrite contract terms. This decision underscores the risk that a party who improperly invokes § 2-609 can transform from a potentially aggrieved party into the breaching party themselves, highlighting the importance of strict statutory compliance in commercial transactions.
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