Summary:
The Fourth Circuit affirmed summary judgment against DiStefano, a TastyKake distributor terminated after receiving three breach notices in three months for leaving expired product on shelves and failing to meet store service requirements. The contract explicitly allowed termination after more than two notices in a 12-month period, and DiStefano admitted it had no evidence the notices were wrong.
Claims that Tasty Baking acted in bad faith — targeting inspections, offering less support, sabotaging the route — collapsed because Pennsylvania law limits the implied covenant of good faith to termination decisions only, and even then requires actual evidence. There was none.
Post-termination claims also failed. The contract required only “reasonable efforts,” and DiStefano provided no record evidence of unreasonable conduct. The agreement also made clear that DiStefano owed money to Tasty, not the other way around.
Commentary:
DiStefano may be a franchise case about stale snack cakes, but the contractual principles it applies reverberate throughout consumer bankruptcy practice — especially when it comes to default notices in mortgages, auto loans, and other consumer credit agreements.
The Fourth Circuit enforced the agreement as written: the contract required specific breach notices, Tasty sent them, and the distributor admitted no evidence to the contrary. Everything else — accusations of unfair targeting, lack of assistance, unequal treatment — collapsed because the contract did not impose those duties, and the implied covenant of good faith could not create them.
That framework is directly useful when evaluating whether written notice is required before creditors may (1) declare a default, (2) accelerate the loan, (3) assess attorney fees, or (4) pressure a debtor into reaffirmation.
1. Mortgage Notes: Notice of Default Is Often Mandatory — and Strictly Construed
The Fannie/Freddie Uniform Note (§ 22) requires written notice of default before acceleration or foreclosure. Failure to send a compliant notice can invalidate acceleration, derail foreclosure, or justify objections to a Rule 3002.1 notice or proof of claim.
In contrast to DiStefano, where the franchisor followed the contractual process exactly, many servicers shortcut or misstate § 22 requirements — a defect courts take seriously because the contract creates the right to accelerate.
2. Auto Loans and RISA: Written Right-to-Cure Notices Often Required
Many retail installment sales contracts — and statutes like North Carolina’s RISA — require a written right-to-cure notice before repossession or collection of deficiencies. Omitting or botching that notice can trigger UDTPA liability.
DiStefano teaches the flip side: if a contract does not require notice, courts won’t imply one from “good faith.” Conversely, when a statute or contract does require it, failure to comply is fatal.
3. Attorney Fees: Written Default Notice May Be a Prerequisite
North Carolina law (e.g., N.C. Gen. Stat. § 6-21.2) requires:
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A written notice of default,
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A five-day opportunity to cure,
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Before attorney fees on a note may be assessed.
Creditors regularly overlook this. And in bankruptcy, when a servicer claims prepetition attorney fees or postpetition legal expenses, the absence of the statutory notice can defeat the claim. Here, DiStefano is instructive because the creditor won only because it complied with the contract’s notice mechanism. Consumer creditors must do the same — statutory notice requirements are not optional.
4. Reaffirmation Agreements: Written Default Notices Can Affect Enforceability
For a reaffirmation to be valid, especially on secured debts:
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Some loan agreements require a written notice of default before the creditor can demand reaffirmation to avoid repossession.
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Absent such a notice, a creditor’s request for reaffirmation may be coercive or invalid.
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Courts look skeptically at reaffirmations demanded without following the contract’s written procedures — much as DiStefano shows skepticism for claims unsupported by contractual duties.
If the creditor didn’t send a contractually required default notice, its insistence on reaffirmation may violate § 524(c), FDCPA/UDTPA standards of coercion, or state motor vehicle title rules.
5. The Evidentiary Lesson: Bring the Paper
Just as DiStefano failed because it had no evidence the breach notices were false or unfairly issued, consumers challenging default notices must produce:
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The actual notice (or proof of its absence),
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Mailing logs,
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Servicer records,
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Transaction histories.
Speculation is useless; documents win.
Bottom Line:
DiStefano reinforces a simple but powerful rule:
If a contract or statute requires written notice of default, creditors must give it.
If it doesn’t, courts won’t invent one.
This matters enormously for:
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Mortgages (acceleration & foreclosure)
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Auto loans (right-to-cure before repossession)
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Attorney-fee claims under § 6-21.2
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Reaffirmation negotiations under § 524(c)
When written notice is required, failure to send it spoils the creditor’s entire enforcement — far more consequential than a few stale snack cakes left on a convenience-store shelf.
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