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26. Will the manufacturer likely prevail?
A lumber supplier agreed to sell to a furniture manufacturer all the lumber that the manufacturer required over a two-year period. The sales contract provided that payment was due 60 days after delivery, but that a 3% discount would be allowed if the manufacturer paid within 10 days of delivery. During the first year of the contract, the manufacturer regularly paid within the 10-day period and received the 3% discount. Fifteen days after the supplier had made its most recent lumber delivery to the manufacturer, the supplier had received no payment from the manufacturer. At this time, the supplier became aware of rumors from a credible source that the manufacturer's financial condition was precarious. The supplier called the manufacturer, demanding assurances regarding the manufacturer's financial status. The manufacturer immediately mailed to the supplier its latest audited financial statements as well as a satisfactory credit report prepared by the manufacturer's banker. The rumors proved to be false. Nevertheless, the supplier refused to resume deliveries. The manufacturer has sued the supplier for breach of contract.
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A is incorrect. A quantity term expressed in terms of a manufacturer's requirements is enforceable. Uniform Commercial Code § 2-306 provides that «a term which measures the quantity by the. .. requirements of the buyer means such actual. .. requirements as may occur in good faith. .. .» Essentially, the definiteness of quantity requirement is satisfied if there is an available objective method for determining the quantity, and the requirements of a manufacturer would generally satisfy that need. In this case, once the manufacturer provided the supplier with adequate assurance in the form of audited financial statements and a credit report, the supplier was bound to perform under the contract.
B is incorrect. Under Uniform Commercial Code § 2-609, a party to a contract who has reasonable grounds for insecurity is entitled to request assurances, and is also entitled to suspend performance pending receipt of that assurance. A failure to provide an adequate assurance within a reasonable time (not to exceed 30 days) can be treated as a repudiation, which may give rise to a right to terminate the contract. In this case, the supplier was entitled to seek assurance, but once the manufacturer provided the supplier with adequate assurance in the form of audited financial statements and a credit report, the supplier was bound to perform under the contract.
D is incorrect. This answer correctly concludes that the manufacturer will prevail, but it misstates the reason why this is so. Uniform Commercial Code § 2-609 provides that a party to a contract with reasonable grounds to worry that the other party might not perform can request adequate assurance of performance. In this case, the supplier heard rumors from a credible source that the manufacturer's financial condition was insecure. This would be enough to trigger the right to request assurance, and so it is incorrect to assert that the supplier was not entitled to request assurance. Nevertheless, the manufacturer will prevail because it in fact provided adequate assurance in the form of audited financial statements and a credit report. Therefore the supplier's refusal to continue performance constituted a breach of contract for which the manufacturer is entitled to compensation.