## Facts

- A beverage company granted an entrepreneur exclusive rights to purchase and distribute its “Arizona” beverages in Canada based on an oral agreement later confirmed by a brief letter; no detailed written contract was executed despite draft exchanges.
- The entrepreneur formed Canadian entities to carry out the distributorship, and the supplier shipped product on 10-day credit terms.
- The distributor repeatedly paid late; unpaid invoices grew substantially, and a large check was returned for insufficient funds.
- Canadian sales were materially below the distributor’s projections.
- The supplier demanded cure and financial assurances, including payment of arrears and proof of a substantial revolving credit facility to support continued credit shipments.
- The supplier discovered the distributor’s Canadian operation lacked basic infrastructure (e.g., empty warehouse, no staff, no trucks), increasing the supplier’s concerns about future performance.
- After the distributor paid demanded arrears and placed a very large order, the supplier again requested confirmation that the promised credit facility was actually secured and conditioned further credit/shipment on that assurance.
- The distributor did not provide the requested confirmation, and the supplier stopped shipping and treated the distributorship as terminated.
- The supplier sought a declaratory judgment that any Canadian distributorship rights were terminated and had reverted to the supplier.

## Issues

1. Whether an enforceable exclusive distributorship agreement existed despite the absence of a fully executed written contract.
2. Whether the supplier had reasonable grounds for insecurity and could demand adequate assurance of performance under UCC § 2-609 and suspend performance pending assurance.
3. Whether successive demands for assurance were commercially reasonable and whether the distributor’s nonresponse constituted anticipatory repudiation justifying termination.

## Decision

- The court found an enforceable distributorship agreement based on the parties’ oral agreement, confirmatory writing, and course of performance.
- The court held the supplier had reasonable grounds for insecurity given chronic delinquent payments, a returned check, weak sales, and the lack of meaningful distribution infrastructure.
- The court ruled the supplier’s demands for adequate assurance, including follow-up demands after new grounds for insecurity arose, were commercially reasonable.
- The court held the distributor’s failure to provide the requested assurance within a reasonable time amounted to repudiation under the UCC.
- The court granted declaratory relief that the distributorship rights were lawfully terminated and reverted to the supplier.

## Legal Principles

- A contract, including an exclusive distributorship, may be enforceable based on the parties’ conduct, course of dealing, course of performance, and confirmatory writings even if no formal written agreement is executed.
- Under UCC § 2-609, when reasonable grounds for insecurity arise, a party may demand adequate assurance of due performance and may suspend its own performance while awaiting assurance.
- Failure to provide adequate assurance within a reasonable time (not exceeding 30 days) permits the demanding party to treat the failure as anticipatory repudiation.
- Successive demands for adequate assurance may be commercially reasonable when later events create new reasonable grounds for insecurity.

## Conclusion

The court concluded that the supplier permissibly invoked UCC adequate-assurance rights in response to mounting payment and operational deficiencies, and that the distributor’s failure to provide requested financial confirmation constituted repudiation, making termination of the Canadian distributorship lawful and entitling the supplier to declaratory judgment.


Hornell Brewing Co. v. Spry, 664 N.Y.S.2d 698 (N.Y. Sup. Ct. 1997)