1. List the mistakes the parties made in their compliance with UCC requirements for performance.

2. Which party should have demanded assurances and when?

3. Will Magic Valley be able to recover damages for the 14 days it was shut down?

Sun Valley Potatoes, Inc. (Sun Valley) is a fresh packer of potatoes. Magic Valley Foods, Inc. (Magic Valley) is a processor of potatoes. Sun Valley and Magic Valley entered into three written contracts wherein Sun Valley agreed to sell and deliver and Magic Valley agreed to purchase potatoes. Sun Valley provided nine weekly invoices, but none of those invoices were paid according to the following term in all of the contracts: “net thirty (30) days on amounts delivered on a weekly basis.” As of August 9, 1995, Sun Valley had delivered 108,169 cwt. (at the contract price of $1.13 cwt.) of potatoes to Magic Valley. Magic Valley, on the other hand, had withheld payments totaling $236,904.44.

Sun Valley ceased its deliveries because it had not been paid for a total of 24 invoices. Magic Valley had to shut down its plant for 14 days and it filed suit against Sun Valley for breach of contract. The district court concluded that because Sun Valley had not insisted on strict compliance with the 30-day payment rule, it could not unilaterally repudiate the contract due to late payments. The district court also ruled that Magic Valley was entitled to offset the $236,904.44 it owed Sun Valley against the $231,660.60 it incurred as a result of its processing plant being down for 14 days and the loss of profits associated therewith. Sun Valley appealed.

JUDICIAL DECISION

KIDWELL, Justice … Magic Valley asserted that its reliance on Sun Valley’s waiver of the 30-day payment requirement should be inferred because of Sun Valley’s lack of demand for payment. Magic Valley also argues that it detrimentally relied upon Sun Valley’s waiver when it made arrangements to purchase cover potatoes from other suppliers. Magic Valley’s argument is not logical. The fact that Magic Valley sought cover in case Sun Valley did not deliver enough potatoes does not show that Magic Valley detrimentally relied upon Sun Valley’s acceptance of late payments. The fact that Magic Valley sought cover only shows that Magic Valley was concerned that Sun Valley would not deliver all of the potatoes contracted for. Thus, Magic Valley failed to show that it detrimentally relied on Sun Valley’s alleged waiver.

Magic Valley was making payments to Sun Valley each month from January to June of 1995. However, the monthly payments during this time were never enough to eradicate the growing balance being carried by Sun Valley. Even with these payments, the balance Sun Valley was carrying grew to $236,904.44 by August 9, 1995. Thus, even if Sun Valley had waived its right to 30-day’s payment, it was justified at some point in withholding deliveries due to Magic Valley’s failure to bring its account current. The UCC provides that when a buyer under an installment contract makes installments which “substantially impairs the value of the whole contract, there is a breach of the whole.”

In an attempt to justify withholding payment, Magic Valley claims that because Sun Valley did not deliver, Magic Valley was forced to enter into contracts for cover. Magic Valley bolsters this claim by arguing that Sun Valley began delivering potatoes to third parties. In such a situation the UCC provides that “[w]hen reasonable grounds for insecurity arise with respect to the performance of either party the other may in writing demand adequate assurance of due performance and until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.” ……………………………….