Opinion ID: 2632148
Heading Depth: 1
Heading Rank: 6

Heading: Magic Valley failed to seek adequate assurances before repudiating the contract.

Text: In an attempt to justify withholding payment, Magic Valley claims that because Sun Valley did not deliver on contract 9418, Magic Valley was forced to enter into contracts for cover in July of 1995. Magic Valley bolsters this claim by arguing that as early as March 1995 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. I.C. § 28-2-609(1). Magic Valley failed to comply with this statute in two respects. First, Magic Valley did not seek assurances until the end of August 1995, but withheld payment from Sun Valley months prior to that. Thus Magic Valley had already began suspending its performance to pay, months prior to seeking assurances that Sun Valley would deliver. Second, at the time Magic Valley was seeking assurances in August, it had already received the potatoes for which payment was owed. The statute allows suspension of performance only for which he has not already received the agreed return. Thus, because Magic Valley had already received the potatoes under contract 9418 and the previous contracts, it was obligated to pay without regards to Sun Valley's assurances of completion of contract 9418. If Magic Valley was concerned that it was not going to get the potatoes it had contracted for, it should have sought reasonable assurances from Sun Valley in March, when it learned that Sun Valley was shipping to other processors. In conclusion, Magic Valley breached contract 9418 by unreasonably withholding payment to Sun Valley on contract 9418 and previous contracts. Sun Valley did not anticipatorily breach because it had completed the requirements of the previous contracts and had at least through the month of September to compete contract 9418. Magic Valley had no justifiable reason to withhold payment on either of the previous contracts or 9418. Because Magic Valley breached the contract by not paying Sun Valley's invoices, Sun Valley was justified in withholding the remaining potatoes under contract 9418. The district court erred in holding that Sun Valley breached the contract and that Magic Valley was entitled to offset its damages against the amount owed to Sun Valley.