By-Lo Oil Co. v. ParTech, Inc.

11 F. App'x 538 (6th Cir. 2001)

 

RULE:

As a general matter what constitutes reasonable grounds for insecurity under Mich. Comp. Laws Ann. § 440.2609(1) and adequate assurance under Mich. Comp. Laws Ann. § 440.2609(1), (4) are factual questions left to the trier of fact. This is the general rule; there are exceptions.

FACTS:

ParTech, Inc. (ParTech) (defendant) supplied By-Lo Oil Company (By-Lo) (plaintiff) with software used to manage the latter’s businesses. ParTech would provide By-Lo with continuous monthly support and maintenance to ensure that it would be compliant for the year 2000, referred to as Y2K. In 1998, a By-Lo executive wrote a letter to ParTech demanding details of ParTech’s plans in making By-Lo’s software Y2K compliant before December 31, 1999. ParTech said that the company was reviewing data about how to make the software Y2K compliant and that By-Lo would be immediately informed upon completion. Concerned that it was running out of time, By-Lo purchased a new Y2K compliant computer system. Unaware of By-Lo’s purchase, ParTech informed By-Lo that it would supply the needed software free of charge. Thereafter, ParTech sent By-Lo the necessary software with detailed instructions for loading it, but because By-Lo had purchased an entirely different system, it resulted to a software error. By-Lo filed suit against ParTech in Michigan state court alleging ParTech’s actions amounted to an anticipatory breach of the contract under Michigan’s Uniform Commercial Code (UCC) §§ 2-609 and 2-610. ParTech removed the suit to federal district court and filed a motion for summary judgment. The district court granted ParTech’s motion, holding that there was no basis to believe that ParTech had breached the contract.

ISSUE:

May vague assurances amount to insecurity, thereby justifying actions predicated upon anticipatory breach?

ANSWER:

No.

CONCLUSION:

The court found plaintiff's letter to defendant could not be viewed as a request for modification under the modification clause. Under that provision, plaintiff had to request a modification. No such request had to be made under the continuing support clause. The letter indicated plaintiff believed defendant was obligated to make the software Y2K compliant under the continuing support clause. The letter was a request for assurance. The continuing support clause contemplated that without such support the software might not function as well or at all. If this was considered together with an alleged failure to return calls, it might have given rise to reasonable grounds for insecurity at some point before Y2K. Plaintiff offered little reason to conclude that it reasonably felt insecure nearly two years prior to the date performance was necessary. It had not complained as to previous service nor was there any indication that it was in a time pinch to obtain a new system. Assurance that plaintiff was evaluating the matter was adequate despite the fact that it was less than requested. Plaintiff did not have reasonable grounds for insecurity in January, 1998.

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