## Facts

- Pittsburgh-Des Moines Steel Company (PDM) contracted to design and construct a one-million-gallon elevated water tank for Brookhaven Manor Water Company (Brookhaven) for $175,000.
- The parties negotiated payment terms: Brookhaven rejected progress payments, and the final written agreement required 100% payment within 30 days after the tank was tested and accepted.
- After contracting, PDM learned Brookhaven was seeking financing and became concerned about Brookhaven’s ability to pay the lump sum when due.
- PDM sought written assurance from the prospective lender that $175,000 would be held in escrow to secure payment; no such written assurance was provided.
- PDM demanded that Brookhaven’s president personally guarantee payment and that the contract price be placed in escrow, although these conditions were not required by the contract.
- Brookhaven refused to provide a personal guaranty or escrow but provided information concerning the president’s personal financial worth.
- PDM stopped manufacturing and never built the tank, treating Brookhaven’s refusal as repudiation or failure to provide adequate assurance.

## Issues

1. Whether Brookhaven repudiated the contract, or instead PDM breached by suspending and abandoning performance, under U.C.C. § 2-609.
2. Whether the district court properly entered judgment notwithstanding the verdict (JNOV) for Brookhaven on liability.
3. Whether the district court’s assessment of damages against PDM was erroneous.

## Decision

- The Seventh Circuit affirmed the district court’s JNOV holding PDM liable for breach of contract.
- The court held Brookhaven did not repudiate by refusing to provide an escrow arrangement and personal guaranty not required by the agreement.
- The court held PDM’s demand exceeded the scope of U.C.C. § 2-609 and functioned as an attempt to impose new payment-security terms that had been rejected during negotiation.
- The Seventh Circuit affirmed the district court’s damages award to Brookhaven on its counterclaim.

## Legal Principles

- U.C.C. § 2-609 permits a demand for adequate assurance only when reasonable grounds for insecurity arise, and the demand must seek assurance consistent with the existing contract.
- A party may not use § 2-609 to impose new substantive obligations (such as escrow funding or a personal guaranty) as a condition of continued performance.
- Refusal to accept an overreaching demand for assurance is not anticipatory repudiation.
- A party that suspends performance without contractual or statutory justification may itself repudiate and breach the contract, exposing it to damages.

## Conclusion

The court held that PDM could not invoke U.C.C. § 2-609 to force escrow and personal-guaranty protections absent from the contract, and that Brookhaven’s refusal to accept those added conditions was not repudiation; PDM’s cessation of performance was a breach supporting Brookhaven’s recovery of damages.


Pittsburgh-Des Moines Steel Co. v. Brookhaven Manor Water Co., 532 F.2d 572 (7th Cir. 1976)