Hornell Brewing Co. v. Spry

Supreme Court of New York · Contracts

ContractsUCC Article 2Adequate assuranceTermination of distributorshipsale of goodsdistributorshipexclusive distributorshipformation by conduct

Facts

Hornell orally granted Spry the exclusive right to purchase and distribute Arizona beverages in Canada, and although the parties discussed written drafts, no formal written distributorship agreement was executed. The parties nevertheless performed for months: Spry formed a Canadian corporation, obtained approvals, ordered product, Hornell shipped product, and defendants made payments, though often late and not in full. Defendants repeatedly fell into arrears, bounced a check, lacked reliable financing, and failed to meet payment promises, leading Hornell to demand adequate assurances. After Metro paid defendants' arrears, Spry immediately placed a much larger order, while Hornell had also learned that Spry's operation lacked staff, trucks, and inventory; Hornell demanded further credit documentation or a guarantee, and defendants did not respond.

Issue

Whether the parties formed an enforceable distributorship contract through their conduct despite the absence of a signed writing, and if so, whether Hornell had reasonable grounds for insecurity under UCC 2-609 permitting it to demand further adequate assurance and terminate the agreement when defendants failed to provide it.

Rule

Under UCC 2-204(1) and 2-207(3), a contract for the sale of goods may be formed by conduct recognizing the existence of a contract even without a signed writing. Under UCC 2-609, when a party has reasonable grounds for insecurity about the other party's performance, judged by commercial standards and the facts of the relationship, it may demand adequate assurance, suspend performance if commercially reasonable, and treat failure to provide such assurance as a repudiation. Repeated demands for adequate assurance are permissible when circumstances materially change.

🔒

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Cascade Orchard Drinks orally told Lena Ortiz that she would have the exclusive right to distribute its bottled juices in Alaska. No final written agreement was ever signed, but over eight months Lena formed North Strait Beverages, secured state labeling approvals, placed repeated purchase orders, Cascade shipped goods, and North Strait made several payments, though some were late.

If Cascade later argues that no enforceable distributorship contract ever existed because the parties never executed a formal writing, what is the strongest response?

Explanation. Under the majority opinion, a contract for the sale of goods may be formed by conduct recognizing the existence of a contract. The critical facts are the parties' mutual performance: setup of the distributorship, regulatory approvals, orders, shipments, and payments. The absence of a signed formal distributorship agreement does not preclude contract formation where both sides acted as though bound. (Derived from Hornell Brewing Co. v. Spry (n.d.).)