1 professor of law loyola law school, los angeles chapter 1 introduction
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- . Performance and Breach Under the CISG
- DELCHI CARRIER SpA v. ROTOREX CORP.
- Notes, Questions Problems
- D. Excuse From Performance – Impracticability And Frustration of Purpose
- MAPLE FARMS, INC. v. CITY SCHOOL DISTRICT
Problems Problem 69 – Contract for the delivery and installation of a pool heater. The pool heater was delivered to buyer’s premises. It sat there for four days. Before it was installed, it was stolen. Who had the risk of loss? See UCC § 2-510(1); In re Thomas, 182 B.R. 347, 26 UCC Rep Serv. 2d 774 (S.D. Fla. 1995). Problem 70 - While goods identified to the contract were in the seller’s warehouse, the buyer wrongfully repudiated the contract. The goods were destroyed in a fire. Seller has insurance that covers the loss. When an insurance company pays a claim made by its insured customer, it is given an equitable right of subrogation to step into the shoes of the insured and to assert the insured’s rights. For example, if you are involved in a car accident that is the fault of the other driver, you may nevertheless seek recovery from your insurance company under the provisions of the policy calling for the company to pay to repair any damage to your car no matter who was at fault (the “collision” part of the policy as compared to the “liability” part). If the insurance company pays, it is subrogated to your right to recover from the driver who was at fault. In this problem, if Seller’s insurance company pays Seller, is the insurance company subrogated to any right that the Seller might have to sue Buyer? See the last sentence of official comment 3 to § 2-510. C. Performance and Breach Under the CISG The obligations of the seller under the CISG are spelled out in Articles 30-44 and the obligations of the buyer are contained in Articles 53-60. Basically, the seller is required to deliver goods that are in conformity with the requirements of the contract and the buyer is required to take delivery and pay for them as required under the contract. Perhaps the biggest difference between the CISG and the UCC on the question of performance is that neither party is permitted to cancel, or in the parlance of the CISG “avoid,” the contract for an insignificant breach. There is no “perfect tender rule” under the CISG. Rather, the buyer may avoid the contract only if the seller has committed a “fundamental breach” or, in the case of non-delivery, the seller does not deliver goods within the additional period of time set by the buyer under CISG Article 47. CISG Art. 49. Likewise, the seller may avoid the contract only if the buyer has committed a “fundamental breach” or if the buyer has not performed its obligations within the additional period of time set by the seller under CISG Article 63. CISG Art. 64. If the injured party is not entitled to avoid because the breach is not fundamental, the injured party may still be able to obtain specific performance or damages, as discussed in the next chapter. What is meant by “fundamental breach”? It is defined in Article 25, and requires substantial deprivation of what the injured party was entitled to expect under the contract. In addition, the substantial deprivation resulting from the breach must have been reasonably foreseeable to the breaching party. The U.N. Secretariat Commentary to the predecessor section to Article 25 elaborates somewhat by stating that the monetary value of the contract, the monetary value of the harm caused by the breach and the interference with the activities of the injured party are all relevant factors. As to whether the results of the breach must be foreseeable at the time of contracting or at the time of breach, the Commentary suggests that it is up to the tribunal deciding the case to decide based on the facts of the given case. Cases and commentators focus on a number of factors in determining whether there has been a fundamental breach. One question would be whether the parties in the contract have defined what is fundamental. For example, have they agreed that the designated time of delivery is an essential condition to the buyer’s obligation to accept and pay for the goods (often called “time is of the essence”)? Have they agreed that the goods must be suitable for a particular purpose in order to be acceptable? Other factors include willingness of the breaching party to perform, ability of the breaching party to cure and adequacy of damages.33 As you can see, these factors are similar to those considered in determining material breach or substantial impairment in value. On the foreseeability question, it can be argued that foreseeability should be determined at the time of contracting since it is at that time that the party decides to undertake the risks of performing. If the party is aware that a late delivery by one day will have catastrophic results for which that party will be liable, the party may decide not to enter into the contract. On the other hand, if the party subsequently becomes aware of the other party’s special needs and it is not difficult for the party to perform exactly according to the contract, perhaps notions of good faith require exact performance on pain of finding fundamental breach in the event that such performance is not forthcoming. So this may explain why a “one size fits all” rule does not exist.34 Another concept in the CISG that is different from the UCC is the concept of the nachfrist, or extension, notice. As previously noted, either the seller or the buyer may give the other party a reasonable period of additional time to perform. If performance is still not forthcoming after that time, then the contract may be avoided. Of course, there is a question as to what constitutes a reasonable period of time, and the question of what is reasonable probably is related to the concept of fundamental breach. The CISG requires the buyer to inspect the goods for nonconformities as soon as is practicable. CISG Art. 38. The CISG requires that the buyer give notice to the seller of any nonconformity with respect to the goods within a reasonable time after the buyer knew or should have known of the nonconformity if the buyer wishes to assert that lack of nonconformity against the seller. CISG Art. 39. The seller is not permitted to assert the buyer’s failure to examine the goods or give notice if the seller knew or could not have been unaware of the nonconformities. Article 40. If either the buyer or seller wishes to avoid the contract, notification of avoidance must be given within the time indicated in Articles 49 and 64. DELCHI CARRIER SpA v. ROTOREX CORP. United States Court of Appeals, Second Circuit 71 F.3d 1024 (1995) Rotorex Corporation, a New York corporation, appeals from a judgment of $1,785,772.44 in damages for lost profits and other consequential damages awarded to Delchi Carrier SpA following a bench trial before Judge Munson. The basis for the award was Rotorex's delivery of nonconforming compressors to Delchi, an Italian manufacturer of air conditioners. Delchi cross-appeals from the denial of certain incidental and consequential damages. We affirm the award of damages; we reverse in part on Delchi's cross-appeal and remand for further proceedings. BACKGROUND In January 1988, Rotorex agreed to sell 10,800 compressors to Delchi for use in Delchi's "Ariele" line of portable room air conditioners. The air conditioners were scheduled to go on sale in the spring and summer of 1988. Prior to executing the contract, Rotorex sent Delchi a sample compressor and accompanying written performance specifications. The compressors were scheduled to be delivered in three shipments before May 15, 1988. Rotorex sent the first shipment by sea on March 26. Delchi paid for this shipment, which arrived at its Italian factory on April 20, by letter of credit. Rotorex sent a second shipment of compressors on or about May 9. Delchi also remitted payment for this shipment by letter of credit. While the second shipment was en route, Delchi discovered that the first lot of compressors did not conform to the sample model and accompanying specifications. On May 13, after a Rotorex representative visited the Delchi factory in Italy, Delchi informed Rotorex that 93 percent of the compressors were rejected in quality control checks because they had lower cooling capacity and consumed more power than the sample model and specifications. After several unsuccessful attempts to cure the defects in the compressors, Delchi asked Rotorex to supply new compressors conforming to the original sample and specifications. Rotorex refused, claiming that the performance specifications were "inadvertently communicated" to Delchi. In a faxed letter dated May 23, 1988, Delchi cancelled the contract. Although it was able to expedite a previously planned order of suitable compressors from Sanyo, another supplier, Delchi was unable to obtain in a timely fashion substitute compressors from other sources and thus suffered a loss in its sales volume of Arieles during the 1988 selling season. Delchi filed the instant action under the United Nations Convention on Contracts for the International Sale of Goods ("CISG" or "the Convention") for breach of contract and failure to deliver conforming goods. On January 10, 1991, Judge Cholakis granted Delchi's motion for partial summary judgment, holding Rotorex liable for breach of contract. DISCUSSION The district court held, and the parties agree, that the instant matter is governed by the CISG, reprinted at 15 U.S.C.A. Appendix (West Supp.1995), a self-executing agreement between the United States and other signatories, including Italy. Because there is virtually no caselaw under the Convention, we look to its language and to "the general principles" upon which it is based. See CISG art. 7(2). The Convention directs that its interpretation be informed by its "international character and ... the need to promote uniformity in its application and the observance of good faith in international trade." See CISG art. 7(1); see generally John Honnold, Uniform Law for International Sales Under the 1980 United Nations Convention 60-62 (2d ed. 1991) (addressing principles for interpretation of CISG). Caselaw interpreting analogous provisions of Article 2 of the Uniform Commercial Code ("UCC"), may also inform a court where the language of the relevant CISG provisions tracks that of the UCC. However, UCC caselaw "is not per se applicable." Orbisphere Corp. v. United States, 726 F.Supp. 1344, 1355 (Ct.Int'l Trade 1989). Under the CISG, "[t]he seller must deliver goods which are of the quantity, quality and description required by the contract," and "the goods do not conform with the contract unless they ... [p]ossess the qualities of goods which the seller has held out to the buyer as a sample or model." CISG art. 35. The CISG further states that "[t]he seller is liable in accordance with the contract and this Convention for any lack of conformity." CISG art. 36. Judge Cholakis held that "there is no question that [Rotorex's] compressors did not conform to the terms of the contract between the parties" and noted that "[t]here are ample admissions [by Rotorex] to that effect." We agree. The agreement between Delchi and Rotorex was based upon a sample compressor supplied by Rotorex and upon written specifications regarding cooling capacity and power consumption. After the problems were discovered, Rotorex's engineering representative, Ernest Gamache, admitted in a May 13, 1988 letter that the specification sheet was "in error" and that the compressors would actually generate less cooling power and consume more energy than the specifications indicated. Gamache also testified in a deposition that at least some of the compressors were nonconforming. The president of Rotorex, John McFee, conceded in a May 17, 1988 letter to Delchi that the compressors supplied were less efficient than the sample and did not meet the specifications provided by Rotorex. Finally, in its answer to Delchi's complaint, Rotorex admitted "that some of the compressors ... did not conform to the nominal performance information." There was thus no genuine issue of material fact regarding liability, and summary judgment was proper. Under the CISG, if the breach is "fundamental" the buyer may either require delivery of substitute goods, CISG art. 46, or declare the contract void, CISG art. 49, and seek damages. With regard to what kind of breach is fundamental, Article 25 provides: A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result. CISG art. 25. In granting summary judgment, the district court held that "[t]here appears to be no question that [Delchi] did not substantially receive that which [it] was entitled to expect" and that "any reasonable person could foresee that shipping non-conforming goods to a buyer would result in the buyer not receiving that which he expected and was entitled to receive." Because the cooling power and energy consumption of an air conditioner compressor are important determinants of the product's value, the district court's conclusion that Rotorex was liable for a fundamental breach of contract under the Convention was proper. [The part of the opinion dealing with damages will be reproduced in the next chapter.] Notes, Questions & Problems 1) What factors do you think are important in determining that the seller’s failure to perform in this case constituted a fundamental breach? Is it enough that 93% of the first shipment failed the test? Why have a fundamental breach rule in international sales as compared to a perfect tender rule? 2) Could the seller have cured in this case if it had wanted to? See CISG Art. 48. Problem 71 - Assume a contract for the sale of shoes for resale purposes. The contract does not indicate that time is of the essence and the shoes are not seasonal items. Half the shoes were to be delivered in November and half the following January. None of the shoes are delivered by the first delivery date. In December, the buyer contacts the seller by telephone and complains about the late delivery, reminding the seller of the January deadline. In January, about half of the shoes are delivered and buyer accepts the goods but does not pay for them. In February and March the buyer contacts the seller and complains about the failure of the seller to deliver the remaining shoes. The buyer continues to refuse to pay. Finally, the buyer declares the contract avoided. Does it appear that there has been a fundamental breach, warranting avoidance? Should it matter if in January, the buyer told the seller that the shoes were immediately needed for a big sale the buyer was planning? Has the buyer given a valid extension notice under Article 47? See U.N. Secretariat Commentary on the predecessor section to Article 47, paragraph 7, which can be found on the internet at http://www.cisg.law.pace.edu/cisg/text/secomm/secomm-47.html. What factors should be relevant in determining whether the extension notice provides a reasonable time? See Kimbel, Nachfrist Notice and Avoidance Under the CISG, 18 J. of Law & Comm. 301, 310-312 (1999), http://www.cisg.law.pace.edu/cisg/biblio/kimbel.html#kli. The foregoing hypothetical is roughly based on a German case, Oberlandesgericht Dusseldorf 24 April, 1997, CLOUT abstract no. 275, http://cisgw3.law.pace.edu/cases/970424g1.html. Problem 72 – Contract for the sale of men’s dress shoes from a manufacturer to a retailer. The contract is covered by the CISG. Instead of shipping dress shoes, the seller mixes up the order and ships work boots (the dress shoes went elsewhere). Buyer receives the boots, and rather than complain about it decides to try to sell them. Eight months later, Buyer is dissatisfied with the number of boots that have been sold and wants to either (a) avoid the contract or (b) sue for damages for sales that have been lost since boots were shipped rather than dress shoes. Does the Buyer have a remedy against the Seller? See CISG Articles 26, 38, 39, 40, 44 & 49(2). As to whether Seller is precluded from asserting lack of timely notice of non-conformity under Article 40, see Schlechtriem, Uniform Sales Law – The UN-Convention on Contracts For the International Sale of Goods 69-72 (1986), reproduced at http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem-40.html. For a discussion of when Article 44 might apply, see Lookofsky, Editorial Analysis of Article 44, http://www.cisg.law.pace.edu/cisg/text/e-text-44.html. Problem 73 – Contract for the sale of a computer system subject to the CISG. Assume that after months of trying, the Seller is unable to make the system run according to contract specifications. The contract has a provision in it indicating “Buyer’s sole remedy under this contract is to permit Seller to repair or replace defective parts in the goods, and to correct programming errors.” Finally, Buyer is fed up and wishes to avoid the contract. You may assume that proper notices are given and that the breach is fundamental. Does the contractual provision prevent Buyer from avoiding? See CISG Articles 6 & 8. Problem 74 - In a sale covered by the CISG, Buyer’s agent is supposed to pick up the goods at a warehouse that is operated by a warehouse operator (not Seller). The date of delivery is to be June 1. The warehouse operator is told by Seller that Buyer is to pick up the goods. Seller tells Buyer that the goods are ready to be picked up. The goods are clearly identifiable to the contract. Due to inadvertence, Buyer’s agent fails to pick up the goods. On June 2, the warehouse and the goods are destroyed by fire through no fault of any party. As between Buyer and Seller, who had the risk of loss? What if Buyer was to pick up the goods from Seller’s place of business which was destroyed by fire along with the goods? See CISG Art. 69. What if Buyer took possession of the goods and discovered that they had serious defects which would amount to fundamental breach. The next day and before Buyer had an opportunity to give notice of avoidance, the goods were destroyed by fire. Who had the risk of loss? See CISG Art. 66. D. Excuse From Performance – Impracticability And Frustration of Purpose In your Contracts class, you probably spent some time focusing on the doctrines of impossibility of performance and frustration of purpose. If you recall, sometimes performance of a contractual duty may be discharged where due to some unforeseen event the performance becomes either physically impossible or becomes unduly onerous. You might have studied the English case of Taylor v. Caldwell, 122 Eng. Rep. 309 (K.B. 1863), in which the owner of a music hall was excused from performance under a contract for use of the hall when it burned down. In addition, performance may be discharged where the parties understood at the time of contracting that there was a specific purpose for the contract, and due to some unforeseen event the purpose has become substantially frustrated. You might have studied the English case of Krell v. Henry, [1903] 2 K.B. 740, in which a person who contracted to rent a room to view the coronation of King Edward VII was excused from performance when the King was stricken with perityphlitis. It is also quite possible that you have suffered frustration while studying impossibility and frustration because the rules are murky and court decisions are somewhat unpredictable. The UCC has several rules dealing with excuse on the basis of impracticability and frustration, sections 2-613 through 2-616. At first read, it does not appear that the doctrine of frustration of purpose is dealt with by these sections, but official comment 9 to section 2-615 suggests that frustration may be a proper excuse under the UCC in some cases. Courts might also apply frustration under general principles of law and equity. See UCC § 1-103. The CISG provides that a party to a contract is not liable for failure to perform if such “failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.” This provision has been described as one of the more difficult of the CISG Articles to apply. What constitutes an “impediment”? It is unclear whether it encompasses economic impracticability, meaning that performance is possible but perhaps economically ruinous, or frustration of purpose.35 As is often the case with the CISG, the provision was drafted in a vague manner to accommodate the fact that different legal systems have different approaches. By comparison, the UNIDROIT Principles of International Commercial Contracts grants relief on the basis of hardship, which is defined as including situations in which the cost of performing has increased or the value of the contract has decreased due to unforeseen circumstances. UNIDROIT Principles of International Commercial Contracts Art. 6.2.2. MAPLE FARMS, INC. v. CITY SCHOOL DISTRICT Supreme Court, Chemung County, New York, Special Term 76 Misc. 2d 1080, 352 N.Y.S.2d 784 (1974) This is a motion for summary judgment in an action for declaratory judgment whereby the plaintiff seeks a determination that the contract wherein the plaintiff agreed to supply milk to the defendant school district at an agreed price be terminated without further liability on the grounds of legal 'impossibility' or 'impracticality' because of the occurrence of events not contemplated by the parties which makes performance impracticable. The background of this dispute is that the price of raw milk at the farm site is and has been controlled for many years in this area by the United States Department of Agriculture through the New York--New Jersey Market Administrator. The president of the plaintiff milk dealer has for at least ten years bid on contracts to supply milk for the defendant school district and is thoroughly conversant with prices and costs. Though the plaintiff avers that the defendant was aware of the prices of raw milk and the profit picture, the fiscal officer of the defendant denies that either the price of raw milk or the profit structure of suppliers was known or of any concern to him or the defendant. The defendant's only concern was the assurance of a steady supply of milk for the school lunch program at an agreed price on which the school's budget had to be based. The mandated price of raw milk has in the past fluctuated from a cost of $6.73 cwt. in 1969 to a high of $7.58 cwt. in 1972, or 12%, with fluctuation within a calendar year ranging from 1% to 4.5%. The plaintiff agreed to supply milk to the defendant for the school year 1973--1974 by agreement of June 15, 1973 at a price of $.0759 per half pint, at which time the mandated price of raw milk was $8.03 cwt. By November of 1973 the price of raw milk had risen to $9.31 cwt. and by December 1973 to $9.89 cwt., an increase of 23% Over the June 1973 price. However, it should be noted that there was an increase from the low price in 1972 to the June 1973 price (date of the contract) of 9.5%. Because of considerable increase in the price of raw milk, the plaintiff, beginning in October 1973, has requested the defendant to relieve the plaintiff of its contract and to put the contract out for rebidding. The defendant has refused. The plaintiff spells out in detail its costs based on the June and December prices of raw milk and shows that it will sustain a loss of $7,350.55 if it is required to continue its performance on the same volume with raw milk at the December price. Its contracts with other school districts where it is faced with the same problem will triple its total contemplated loss. The plaintiff goes to great lengths to spell out the cause of the substantial increase in the price of raw milk, which the plaintiff argues could not have been foreseen by the parties because it came about in large measure from the agreement of the United States to sell huge amounts of grain to Russia and to a lesser extent to unanticipated crop failures. The legal basis of the plaintiff's request for being relieved of the obligation under the contract award is the doctrine known variously as 'impossibility of performance' and 'frustration of performance' at common law and as 'Excuse by Failure of Presupposed Conditions' under the Uniform Commercial Code, s 2-615. Performance has been excused at common law where performance has become illegal, Boer v. Garcia, 240 N.Y. 9, 147 N.E. 231; Matter of Kramer & Uchitelle, Inc., 288 N.Y. 467, 43 N.E.2d 493; Labaree Co. v. Crossman, 100 App.Div. 499, 92 N.Y.S. 565, affd. no op. 184 N.Y. 586, 77 N.E. 1189; where disaster wipes out the means of production, Goddard v. Ishikawajima-Harima Heavy Industries Co., 29 A.D.2d 754, 287 N.Y.S.2d 901, affd. no op. 24 N.Y.2d 842, 300 N.Y.S.2d 851, 248 N.E.2d 600; where governmental action prevents performance, Nitro Powder Co. v. Agency of Canadian Car & Foundry Co., 233 N.Y. 294, 135 N.E. 507; Mawhinney v. Millbrook Woolen Mills, 231 N.Y. 290, 132 N.E. 93. In Mineral Park Land Co. v. Howard, 172 Cal. 289, 156 P. 458 (1916) the defendants agreed to take all the gravel from the plaintiff's land up to a certain quantity. The defendants took only half the agreed amount because the balance of the gravel was under the water level. The court relieved the defendants from the obligation to pay for the balance under water because it was not within the contemplation of the parties that the gravel under the water level would be taken and secondly because the cost of doing so would be ten to twelve times as expensive. The court stated the common law rule, 172 Cal. 293, 156 P. at page 460: '(4) 'A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost.' (1 Beach on Contr. s 216.) We do not mean to intimate that the defendants could excuse themselves by showing the existence of conditions which would make the performance of their obligation more expensive than they had anticipated, or which would entail a loss upon them. But, where the difference in cost is so great as here, and has the effect, as found, of making performance impracticable, the situation is not different from that of a total absence of earth and gravel.' 407 E. 61st Garage v. Savoy Corp., 23 N.Y.2d 275, 296 N.Y.S.2d 338, 244 N.E.2d 37, holds that where economic hardship alone is involved performance will not be excused. This is so even where governmental acts make performance more expensive. Baker v. Johnson, 42 N.Y. 126; United States v. Wegematic Corp., 2 Cir., 360 F.2d 674. Existing circumstances and foreseeability also play a part in determining whether a party should be relieved of his contracts. 407 E. 61st Garage v. Savoy Corp., Supra; Farlou Realty Corp. v. Woodsam Associates, Inc., 49 N.Y.S.2d 367, affd. no op. 268 App.Div. 975, 52 N.Y.S.2d 575, affd. no op. 294 N.Y. 846, 62 N.E. 396. [The court quotes from UCC § 2-615] The Official Comment, Number '3' to that section points out that the test of impracticability is to be judged by commercial standards. Official Comment Number '4' states: 'Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance, is within the contemplation of this section. (See Ford & Sons, Ltd., v. Henry Leetham & Sons, Ltd., 21 Com. Cas. 55 (1915, K.B.D.).)' Official Comment Number '10' states in part that '. . . governmental interference cannot excuse unless it truly 'supervenes' in such a manner as to be beyond the seller's assumption of risk.' We find little authority dealing with this section based on facts that are similar to those in this case. See, however: Transatlantic Financing Corporation v. United States, 124 U.S.App.D.C. 183, 363 F.2d 312. The Transatlantic case is somewhat analogous to the question raised here. In that case the Suez Canal was closed causing the plaintiff's ship en route to Iran to have to go around Africa to deliver its cargo of wheat. The plaintiff sought to recover the increased expense from the defendant. The court found that shipping dangers in the Suez Canal area could have been anticipated; that the risk should be allocated to the plaintiff and that the increased cost was not of such magnitude to say that it was not within the accepted degree of risk. The doctrine enunciated by Uniform Commercial Code, s 2--615 was explained by the court, 363 F.2d at page 315: 'The doctrine ultimately represents the evershifting line, drawn by courts hopefully responsive to commercial practices and mores, at which the community's interest in having contracts enforced according to their terms is outweighed by the commercial senselessness of requiring performance. When the issue is raised, the court is asked to construct a condition of performance based on the changed circumstances, a process which involves at least three reasonably definable steps. First, a contingency--something unexpected--must have occurred. Second, the risk of the unexpected occurrence must not have been allocated either by agreement or by custom. Finally, occurrence of the contingency must have rendered performance commercially impracticable.' Applying these rules to the facts here we find that the contingency causing the increase of the price of raw milk was not totally unexpected. The price from the low point in the year 1972 to the price on the date of the award of the contract in June 1973 had risen nearly 10% And any businessman should have been aware of the general inflation in this country during the previous years and of the chance of crop failures. However, should we grant that the first test had been met and thus the substantial increase in price was due to the sale of wheat to Russia, poor crops and general market conditions which were unexpected contingencies, then the question of allocation of risk must be met. Here the very purpose of the contract was to guard against fluctuation of price of half pints of milk as a basis for the school budget. Surely had the price of raw milk fallen substantially, the defendant could not be excused from performance. We can reasonably assume that the plaintiff had to be aware of escalating inflation. It is chargeable with knowledge of the substantial increase of the price of raw milk from the previous year's low. It had knowledge that for many years the Department of Agriculture had established the price of raw milk and that that price varied. It nevertheless entered into this agreement with that knowledge. It did not provide in the contract any exculpatory clause to excuse it from performance in the event of a substantial rise in the price of raw milk. On these facts the risk of a substantial or abnormal increase in the price of raw milk can be allocated to the plaintiff. As pointed out in the Transatlantic case, 363 F.2d at page 319, where the circumstances reveal a willingness on the part of the seller to accept abnormal rises in costs, the question of impracticability of performance should be judged by stricter terms than where the contingency is totally unforeseen. The increase in the price of raw milk from June to December 1973 was 23% and the estimated loss to the plaintiff in completing the contract on the same assumed volume and estimated cost of raw milk would be $7,350.55. Based on the plaintiff's December 1973 figures, including increased transportation cost, the cost of a delivered half pint of milk would be 10.4% greater than the bid price. The percentage would be 8.7% without the increased transportation cost. There is no precise point, though such could conceivably be reached, at which an increase in price of raw goods above the norm would be so disproportionate to the risk assumed as to amount to 'impracticality' in a commercial sense. However, we cannot say on these facts that the increase here has reached the point of 'impracticality' in performance of this contract in light of the risks that we find were assumed by the plaintiff. The plaintiff's motion is denied and the defendant is granted summary judgment dismissing the complaint. Download 1.49 Mb. Share with your friends:
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