## Facts

- On April 20, 1992, Daniel Hubbard, a potato farmer in Bath, New York, and UTZ Quality Foods, Inc. (UTZ), a Pennsylvania potato chip manufacturer, entered a written installment contract prepared by UTZ.
- Hubbard agreed to supply UTZ with 11,000 hundredweight (cwt) of Norwis (657) “new chipping potatoes” at \$6.25 per cwt, F.O.B. New York, beginning about September 5, 1992, in weekly installments of 2,000–4,000 cwt as scheduled by UTZ.
- The contract set detailed quality requirements, including compliance with USDA No. 1 white chipping potato standards and UTZ’s additional quality specifications.
- One specification required fry color to meet the #1 or #2 designation on the 1978 Snack Food Association Fry Color Chart.
- Before shipments proceeded, Hubbard submitted a sample for UTZ’s evaluation.
- UTZ rejected the sample on the ground that it did not meet the contract’s #1 or #2 fry-color requirement (the fried color appeared too dark when compared to the chart).
- Hubbard contended the potatoes conformed and alleged UTZ used the color standard as a pretext to avoid paying the contract price as market prices dropped.
- The parties disputed the proper method for evaluating fry color: UTZ relied on visual comparison to the Fry Color Chart; Hubbard argued for instrumental testing (Agtron readings).
- Hubbard sued for breach of contract seeking the full contract price, \$68,750. UTZ denied liability and counterclaimed that Hubbard breached by failing to supply potatoes meeting the contract’s quality standards.
- The case was tried to the court in a bench trial, and the court issued findings of fact and conclusions of law under Federal Rule of Civil Procedure 52.

## Issues

1. Under New York’s U.C.C. rules governing installment contracts, did UTZ rightfully reject Hubbard’s potatoes based on failure to meet the contract’s fry-color requirement?
2. Did the color nonconformity substantially impair the value of the tendered installment(s) to UTZ so as to justify rejection under U.C.C. § 2-612?
3. Did UTZ act in good faith in rejecting the potatoes, or was the rejection a pretext to escape an above-market contract price?
4. Did the contract, course of dealing, or trade usage require UTZ to use Agtron (instrumental) readings rather than visual comparison to determine compliance with the fry-color term?

## Decision

- The court held UTZ properly rejected Hubbard’s potatoes because they failed to meet the contract’s fry-color specification tied to the 1978 Snack Food Association Fry Color Chart.
- The court found the color defect substantially impaired the value of the potatoes to UTZ for potato chip production, permitting rejection under the installment-contract standard.
- The court rejected Hubbard’s claim that UTZ’s stated quality reason was a sham and concluded UTZ’s rejection was made in good faith.
- The court declined to impose an Agtron-testing requirement, reasoning that the contract did not mandate that method and UTZ’s visual chart comparison was a reasonable way to apply the agreed standard.
- Hubbard’s breach-of-contract claim for the full contract price was dismissed, and UTZ prevailed on its position that Hubbard failed to tender goods that met the contract’s requirements.

## Legal Principles

- Under U.C.C. § 2-612, in an installment contract a buyer may reject a nonconforming installment if the nonconformity substantially impairs the value of that installment and cannot be cured within the contract’s framework.
- When parties set specific, objective quality criteria in a sales contract (such as a named industry fry-color chart and designated acceptable ranges), the buyer may insist on compliance with those criteria.
- Course of performance, course of dealing, and trade usage may inform how a quality term is applied, but a court will not add a particular testing protocol absent contract language or proof that the protocol is a binding trade usage between the parties.
- A buyer’s rejection must be made in good faith; allegations that the buyer had economic reasons to reject do not defeat rejection where the court finds an actual, contract-based nonconformity.
- When a contract sets an endpoint standard (here, a chart category), the buyer may use a commercially reasonable evaluation method consistent with that standard, including visual comparison where that is accepted practice.

## Conclusion

The court enforced the contract’s fry-color requirement and found Hubbard’s tender failed the agreed #1 or #2 Fry Color Chart standard, a defect that substantially impaired the value of the potatoes to UTZ in chip production. Because UTZ’s rejection was grounded in the contract’s quality terms and made in good faith, Hubbard could not recover the contract price, and his complaint was dismissed.


Hubbard v. Utz Quality Foods, Inc., 903 F.Supp. 444 (1995)