Scott v. Crown

Colorado Court of Appeals · Contracts

Contractsadequate assuranceUCC 2-609written demandreasonable grounds for insecuritysuspension of performanceanticipatory repudiationcontract modification

Facts

Seller and Buyer entered several grain-sale contracts providing that Buyer would pay the balance 30 days after Seller completed delivery of the total contract quantity. After partially performing one contract, Seller stopped delivering because he had heard from his banker and a Department of Agriculture investigator that there were concerns about Buyer’s payment practices, and Buyer had not made personal contact after Seller refused to load more grain. Seller first refused further delivery after telling Buyer’s driver he wanted to settle some questions with Buyer, and Seller’s lawyer later sent a written letter demanding payment on a fully performed contract and on grain already delivered under the partially performed contract. Buyer responded that payment was not yet due under the contracts, cancelled the contracts, and asserted Seller had breached.

Issue

When a seller has reasonable grounds for insecurity under UCC § 4-2-609, may the seller suspend performance based on an oral statement to the buyer’s driver and a later written demand that seeks payment not yet due under the contract? If not, does the seller’s refusal to continue performance amount to anticipatory repudiation?

Rule

Under § 4-2-609, a party may suspend performance only when reasonable grounds for insecurity exist and the party makes an effective demand for adequate assurance of due performance. Generally, the demand must be in writing; an oral demand is sufficient only where the parties’ interactions clearly show both sides understood that assurances were being demanded and that suspension would follow if concerns were not addressed. The demand must clearly request assurances of due performance and may not be used to force contract terms beyond those actually required.

🔒

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.

Mesa Valley Milling, a grain seller in Pueblo, agreed to deliver 20 truckloads of corn to Red Butte Feed Co., a buyer in Colorado Springs. After hearing from its lender and a state agriculture inspector that Red Butte had active payment complaints pending, Mesa Valley sent a signed letter stating: "Because we have reasonable grounds for insecurity, we demand adequate assurance that you will pay when due under our contract; until we receive that assurance, we will suspend further deliveries."

If Red Butte argues Mesa Valley breached by stopping shipments immediately after sending the letter, which is the strongest conclusion?

Explanation. The majority rule is that reasonable grounds for insecurity alone are not enough; the insecure party must also make an effective demand for adequate assurance. A written demand that clearly requests assurance of due performance under the contract, coupled with commercially reasonable suspension, satisfies § 2-609. Nothing in the majority opinion requires an actual missed payment first, full performance by the demanding party, or a demand for immediate payment. (Derived from Scott v. Crown (n.d.).)