Once the seller correctly determines that it has reasonable grounds for insecurity, it must properly request assurances from the buyer. Although U.C.C. § 2-609(1) requires that the request be made in writing, courts have not strictly adhered to this formality as long as an unequivocal demand is made. After demanding assurance, the seller must determine the proper "adequate assurance." What constitutes "adequate" assurance of due performance is subject to the same test of commercial reasonableness and factual conditions.
Plaintiff, beverage supplier and marketer, brought an action for a declaratory judgment to establish that any rights defendant distributor had to distribute plaintiffs' beverages had been duly terminated. The court held that the parties had formed a contract through their conduct and that a contract for sale had been established under U.C.C. §§ 2-204(1) and 2-207(3). The uncontroverted business dealings between the parties constituted conduct sufficient to establish a contract for sale even in the absence of a specific writing. The court held that plaintiff had demonstrated a basis for the lawful termination of its contract with defendant in accordance with U.C.C. § 2-609. The court ordered that plaintiff have a declaratory judgment that defendant distributor was duly terminated and had no continuing rights with respect to plaintiff's beverage products because plaintiff had demonstrated a basis for the lawful termination of the parties' contract.
Did the plaintiff establish reasonable grounds for insecurity?
The court found that the evidence established that plaintiff had reasonable grounds to be insecure about defendants ability to perform due to the fact that defendant was substantially in arrears. Defendant's failure to respond to plaintiff's request for an adequate assurance constituted a repudiation of the distributorship agreement.