AMF, Inc. v. McDonald’s Corp.

Brief Fact Summary.

McDonald’s (Defendants) paid $20,385.28 to AMF (Plaintiff) for a prototype electronic cash register. The prototype started giving problems and was removed. Plaintiff requested that Defendant should reduce its order from 23 machines to 5. Defendant didn't accept and both mutually cancelled the contract. Defendant's sued Plaintiff in seeking to recover its $20,385.28. Plaintiff also filed suit against Defendant seeking damages for the wrongful repudiation of its contract to purchase 23 units. Cases were combined and court ruled.

Synopsis of Rule of Law.

Under the Uniform Commercial Code (UCC), a party that has a reasonable justification for frailty with respect to the party's capacity to effectively play out the agreement may demand satisfactory confirmation of execution by the other party and, if sufficient affirmation is not given, may anticipatorily repudiate the contract.

Facts.

AMF, Inc. (AMF) (plaintiff) makes electronic cash registers. McDonald's Corp. (McDonald's) (defendant) operates a national chain of restaurants. In April 1968, McDonald's paid $20,385.28 to AMF for a model modernized computerized cash register, which was introduced in McDonald's Elk Grove, Illinois restaurant. McDonald's later requested sixteen electronic money registers from AMF for its company-owned restaurants and seven extra automated money registers from AMF for restaurants owned by its licensees. AMF's model in McDonald's Elk Grove restaurant started having numerous issues and was at last expelled in April 1969. McDonald's asked for AMF build up an arrangement of execution and reliability standards for the future modernized money registers requested by McDonald's. On May 1, 1969, AMF gave unacceptable execution and reliability standards. AMF expressed that it didn't have a working machine and couldn't create one within a reasonable time since its factory employees were too inexperienced. Moreover, AMF asked for that McDonald's at first lessen its request from 23 machines to five. McDonald's did not acknowledge these terms, and both McDonald's and AMF concurred that McDonald's would wipe out its request for 23 electronic money registers since AMF was not able to play out its commitments under the agreement. On July 29, 1969, McDonald's officially repudiated its agreement with AMF. McDonald's documented suit against AMF in federal district court looking to recuperate its $20,385.28 purchase price for the AMF prototype. AMF likewise recorded suit against McDonald's in federal district court looking for damages for the alleged wrongful repudiation by McDonald’s of its contract to purchase 23 computerized cash registers from AMF.  The two cases were attempted together.  The district court held that McDonald’s was not qualified for recoup its $20,385.28 purchase price for the AMF prototype. The district court also held that McDonald’s did not wrongfully repudiate its contract with AMF, and denied AMF’s request for damages. AMF appealed.

Issue.

Under the Uniform Commercial Code, may a party that has a reasonable justification for frailty with respect to the party's capacity to effectively play out the agreement may demand satisfactory confirmation of execution by the other party and, if sufficient affirmation is not given, may anticipatorily repudiate the contract?

Held.

Yes. Under the Uniform Commercial Code (UCC), a party that has a reasonable justification for frailty with respect to the party's capacity to effectively play out the agreement may demand satisfactory confirmation of execution by the other party and, if sufficient affirmation is not given, may anticipatorily repudiate the contract.

Discussion.

McDonald’s was correct in refusing its contract with AMF since AMF was unable to provide any commitment of its ability to complete the contract. Under the Uniform Commercial Code, a party having reasonable basis for insecurity for the other party’s ability to successfully conduct the contract may demand satisfactory assurance of performance by the other party and, if satisfaction is not provided, may refuse the contract. This UCC provision should be seen broadly. Hence, a party is not bound to provide notice of refusal in writing. Weather in a specific case a buyer has enough grounds for insecurity is a question of fact. McDonald’s had enough grounds for insecurity about AMF’s ability to perform because AMF delayed its delivery schedule. AMF also stated that it didn't have a working machine and could not make one within a short time. AMF itself asked to reduce McDonald’s total order since it doubted its ability to comply with contract requirements. Based on above points for reasonable insecurity, McDonald’s was correct to request satisfactory assurance of contract by AMF. AMF didn't provide enough assurance of performance, as the performance and reliability standards it gave to McDonald’s permitted various frequent errors in the machines to satisfy the demands of busy McDonald’s restaurants. AMF didn't give satisfactory assurances of its ability to complete its contract with McDonald’s, and thus McDonald’s was correct in anticipatorily repudiating its contract with AMF on July 29, 1969. The decision of the district court is affirmed.