Opinion ID: 396497
Heading Depth: 2
Heading Rank: 2

Heading: ARB's Cessation of Payments

Text: 21 The contract between E-Systems and ARB included a schedule for payments by ARB, integrated, for the most part, with the schedule of Deliverables due from E-Systems. In the summer of 1974, ARB ceased payments under this schedule. E-Systems contends that its right to payment existed independently of acceptance by ARB of the equipment in question, and thus that ARB breached the contract by failing to maintain the payments according to schedule. The master found that the contract did not require ARB to pay upon delivery for equipment which failed to conform to contract specifications. E-Systems cites a contract provision expressly tying payment to delivery of units. (Contract at 17, P 4.3B.) This assumes, however, that the units conform to the contract. Here, the events leading up to delivery, including the problems experienced with the pre-production models, dispelled any presumption of conformance that might otherwise have existed. Paragraph 6.8, which provides that (a)ll Deliverables ordered will be subject to final inspection and approval by Buyer after delivery, notwithstanding prior payment, it being expressly agreed that payment shall not constitute final acceptance, applies only where the goods are, in fact, paid for upon delivery. It imposes no obligation of prior payment under the circumstances that existed at the time of delivery in this case. An alternative ground for this conclusion is found in contract paragraph 6.11, which, after reciting certain express warranties of quality and performance, states (a)ll warranties shall be construed as conditions as well as warranties.... This paragraph makes ARB's performance, i. e., payment, conditional upon delivery by E-Systems of equipment that conforms to these warranties. Since such equipment was not delivered, ARB's obligation to pay did not mature. 22 A second, independent ground for the rejection of this contention is provided by Md.Com.Law Code Ann. § 2-609 (1975), Right to Adequate Assurance of Performance. This section provides in relevant part that: 23 When 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. 24 E-Systems argues that the district court and ARB are each caught in a web of inconsistencies, arguing for some purposes that the assurances ARB received from E-Systems were adequate, and for other purposes that they were inadequate. In fact, this is the position of the district court, but it is not inconsistent. ARB, rather than cancel the contract when the pre-production models proved inadequate, decided to go ahead with production on the basis of assurances that the problems could be remedied. In giving E-Systems the go-ahead, however, ARB was not waiving its right to conforming goods. 25 These facts fit comfortably within the framework of section 2-609. ARB acted in a commercially reasonable manner throughout the summer of 1974. 10 Nothing in the contract required ARB to perform fully once it became apparent that E-Systems's conforming performance was unlikely. E-Systems relies upon Stewart-Decatur Security Systems, Inc. v. Von Weise Gear Co., 517 F.2d 1136 (8th Cir. 1975), as authority for the proposition that section 2-609 does not apply to these facts. This reliance is misplaced. In Stewart-Decatur, buyer was satisfied with the performance of the prototype. Id. at 1137. Here the weight of the evidence establishes that ARB had communicated its reservations about the pre-production model to E-Systems, and had authorized continuing production only on the basis of E-Systems's assurances that the problems would be corrected. As the master found, AMF, Inc. v. McDonald's Corp., 536 F.2d 1167 (7th Cir. 1976), is more helpful. There McDonald's, dissatisfied with the performance of a prototype unit of a computerized cash register, asked that production under the contract be held up until mutually acceptable standards of performance could be found. The standards were never agreed upon, McDonald's cancelled the contract, and AMF sued. The court held that AMF's failure to provide adequate assurances justified McDonald's action under section 2-609. The only difference between AMF and this case is that E-Systems's assurances were, for a while, more persuasive. This persuasiveness did not entitle E-Systems to payment, on contract terms, for delivery of a non-conforming product.