Kunian v. Development Corp. of America

Connecticut Supreme Court · Contracts

ContractsSalesUCC installment contractsAdequate assuranceDamagesinstallment contractdivisible contractUCC 2-307

Facts

A. Merowitz and Company contracted to supply plumbing and heating materials for the Church Street South project for a stated total price, with invoices for deliveries from the first half of each month payable on the 25th and invoices for deliveries from the second half payable on the 10th of the following month, plus a 2 percent discount if paid within those terms. The seller delivered materials as ordered, but invoiced according to trade custom at its cost plus a 5 percent broker's fee rather than by the attached list prices; the buyer knew this from the beginning, accepted the deliveries, and paid many invoices before falling substantially behind. After the buyer promised on December 12, 1969 to make further payments if deliveries continued, the seller continued delivering, but the buyer made no further payment and then demanded full performance without curing its arrears. The seller demanded security by escrow because of the buyer's large unpaid balance, the buyer refused to provide assurance, and the seller stopped deliveries; the unpaid balance for accepted materials was $51,000, including some substitutions and other items not on the attached list.

Issue

Whether the buyer's failure to make installment payments when due constituted a breach of this sales contract, and whether the seller was justified in suspending further deliveries after demanding assurance of payment. A related issue was whether damages for accepted materials were limited to attached list prices or could include the reasonable value of accepted nonlisted or substitute items.

Rule

Under the UCC, a contract for goods requiring piecemeal delivery and corresponding periodic payment may be a divisible installment contract if the parties intended each delivery to be exchanged for a corresponding payment. In such a contract, failure to pay installments when due is a breach; although suing only for past installments reinstates the contract under UCC 2-612(3), the seller may still demand adequate assurance under UCC 2-609 when reasonable grounds for insecurity arise, and failure to provide assurance within a reasonable time is a repudiation excusing further performance. For accepted goods sued upon as an action on the contract, the measure of damages is the contract price for goods covered by the agreed list, and the reasonable value of accepted substitutions or nonlisted goods where the contract does not clearly require them to be supplied without charge.

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Redwood Mechanical Supply agreed in a signed purchase order to furnish all piping materials needed for an apartment project in Cleveland, Ohio. The order required delivery "as requested by site supervisor," stated that invoices for deliveries made from the 1st through 15th were payable on the 25th, invoices for deliveries made from the 16th through end of month were payable on the 10th of the next month, and allowed a 2% discount if paid within those terms. After accepting several shipments, North Harbor Builders refused to pay until all materials for the project had been delivered.

If Redwood sues for the overdue amounts on accepted shipments, which is the strongest argument under the governing rule?

Explanation. Where goods are to be delivered piecemeal and the contract provides corresponding periodic payment dates, the agreement is treated as a divisible installment contract if each delivery is the agreed exchange for a corresponding payment. The discount clause is read as an incentive for punctual payment, not as postponing the buyer's payment obligation until the seller completes all deliveries. Thus failure to pay accepted installments when due is a breach, and the seller may sue for those overdue installments. (Derived from Kunian v. Development Corp. of America (n.d.).)