Dougherty v. Salt 125 N. E. 94 (1919)

Affirmed.

United States v. Wegematic Corp. 
360 F.2d 674 (2nd Cir. 1966)

OPINION

The facts developed at trial in the District Court for the Southern District of New York, fully set forth in a memorandum by Judge Graven, can be briefly summarized: In June 1956 the Federal Reserve Board invited five electronics manufacturers to submit proposals for an intermediate-type, general-purpose electronic digital computing system or systems; the invitation stressed the importance of early delivery as a consideration in determining the Board's choice. Defendant, a relative newcomer in the field, which had enjoyed considerable success with a smaller computer known as the ALWAC III-E, submitted a detailed proposal for the sale or lease of a new computer designated as the ALWAC 800. It characterized the machine as "a truly revolutionary system utilizing all of the latest technical advances," and featured that "maintenance problems are minimized by the use of highly reliable magnetic cores for not only the high speed memory but also logical elements and registers." Delivery was offered nine months from the date the contract or purchase order was received. In September the Board acted favorably on the defendant's proposal, ordering components of the ALWAC 800 with an aggregate cost of $231,800. Delivery was to be made on June 30, 1957, with liquidated damages of $100 per day for delay. The order also provided that in the event the defendant failed to comply "with any provision" of the agreement, "the Board may procure the services described in the contract from other sources and hold the Contractor responsible for any excess cost occasioned thereby." Defendant accepted the order with enthusiasm.

The first storm warning was a suggestion by the defendant in March 1957 that the delivery date be postponed. In April it informed the Board by letter that delivery would be made on or before October 30 rather than as agreed, the delay being due to the necessity of "a redesign which we feel has greatly improved this equipment"; waiver of the stipulated damages for delay was requested. The Board took the request under advisement. On August 30 defendant wrote that delivery would be delayed "possibly into 1959"; it suggested use of ALWAC III-E equipment in the interim and waiver of the $100 per day "penalty." The Board also took this request under advisement but made clear it was waiving no rights. In mid-October defendant announced that "due to engineering difficulties it has become impracticable to deliver the ALWAC 800 Computing System at this time"; it requested cancellation of the contract without damages. The Board set about procuring comparable equipment from another manufacturer; on October 6, 1958, International Business Machines Corporation delivered an IBM 650 computer, serving substantially the same purpose as the ALWAC 800, at a rental of $102,000 a year with an option to purchase for $410,450.

In July 1958 the Board advised defendant of its intention to press its claim for damages; this suit followed. The court awarded the United States $46,300 for delay under the liquidated damages clause, $179,450 for the excess cost of the IBM equipment, and $10,056 for preparatory expenses useless in operating the IBM system -- a total of $235,806, with 6% interest from October 6, 1958.

The principal point of the defense, which is the sole ground of this appeal, is that delivery was made impossible by "basic engineering difficulties" whose correction would have taken between one and two years and would have cost a million to a million and a half dollars, with success likely but not certain. Although the record does not give an entirely clear notion what the difficulties were, two experts suggested that they may have stemmed from the magnetic cores, used instead of transistors to achieve a solid state machine, which did not have sufficient uniformity at this stage of their development. Defendant contends that under federal law, which both parties concede to govern, see Cargill, Inc. v. Commodity Credit Corp., 275 F.2d 745, 751-753 (2 Cir. 1960), the "practical impossibility" of completing the contract excused its defaults in performance.

We agree with the defendant that the decisions most strongly relied on by the Government are not controlling; much of the seeming confusion in this field of law stems from failure to make necessary distinctions as to who is suing whom for what. Thus Day v. United States, 245 U.S. 159, 38 S. Ct. 57, 62 L. Ed. 219 (1917), and Fritz-Rumer-Cooke Co. v. United States, 279 F.2d 200, 6 Cir. (1960), involved no question of nonperformance but an attempt by a contractor who had fully performed to secure added compensation for surmounting unexpected difficulties. While Austin Co. v. United States, 314 F.2d 518, 161 Ct.Cl. 76, cert. denied, 375 U.S. 830, 84 S. Ct. 75, 11 L. Ed. 2d 62 (1963), did involve failure by a manufacturer to perform because of engineering problems, it was not an effort to resist damages, which the Government did not seek; the contractor was attempting to recover costs incurred prior to termination under a special clause in the contract without which, as Professor Corbin has noted, it "would not have had the shadow of a claim." 6 Corbin, Contracts § 1328 n. 40 (1964 Pocket Part). Consolidated Airborne Systems, Inc. v. United States, 172 Ct. Cl. 588, 348 F.2d 941 (Ct.Cl.1965), was a case of financial inability peculiar to the contractor and is distinguishable under the doctrine of "subjective impossibility," that a promisor's duty is never discharged "by the mere fact that supervening events deprive him of the ability to perform, if they are not such as to deprive other persons, likewise, of ability to render such a performance." 6 Corbin, Contracts | 1332, at 361 (1962). And in Carnegie Steel Co. v. United States, 240 U.S. 156, 36 S. Ct. 342, 60 L. Ed. 576 (1916), which is most nearly apposite in that it concerned a claim by the promisee for delay occasioned by an unanticipated technological problem encountered by the promisor, the precise issue was whether the difficulty came within a clause excusing delays resulting from "unavoidable causes, such as fires, storms, labor strikes, action of the United States, etc." 240 U.S. at 163, 36 S. Ct. at 344. On the other hand, the mere fact that the Government's cases do not dictate decision in its favor does not mean that defendant wins; it means only that we must seek guidance elsewhere.

We find persuasive the defendfendant's suggestion of looking to the Uniform Commercial Code as a source for the "federal" law of sales. The Code has been adopted by Congress for the District of Columbia, 77 Stat. 630 (1963), has been enacted in over forty states, and is thus well on its way to becoming a truly national law of commerce, which, as Judge L. Hand said of the Negotiable Instruments Law, is "more complete and more certain, than any other which can conceivably be drawn from those sources of 'general law' to which we were accustomed to resort in the days of Swift v. Tyson." New York, N.H. & H.R. Co. v. Reconstruction Finance Corp., 180 F.2d 241, 244 (2 Cir. 1950). When the states have gone so far in achieving the desirable goal of a uniform law governing commercial transactions, it would be a distinct disservice to insist on a different one for the segment of commerce, important but still small in relation to the total, consisting of transactions with the United States.

Section 2-615 of the UCC, entitled "Excuse by failure of presupposed conditions," provides that:

"Except so far as a seller may have assumed a greater obligation. . . delay in delivery or non-delivery. . . is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made. . . "

The latter part of the test seems a somewhat complicated way of putting Professor Corbin's question of how much risk the promisor assumed. Recent Developments in the Law of Contracts, 50 Harv.L.Rev. 449, 465-66 (1937); 2 Corbin, Contracts § 1333, at 371. We see no basis for thinking that when an electronics system is promoted by its manufacturer as a revolutionary breakthrough, the risk of the revolution's occurrence falls on the purchaser; the reasonable supposition is that it has already occurred or, at least, that the manufacturer is assuring the purchaser that it will be found to have when the machine is assembled. As Judge Graven said: "The Board in its invitation for bids did not request invitations to conduct a development program for it. The Board requested invitations from manufacturers for the furnishing of a computer machine." Acceptance of defendant's argument would mean that though a purchaser makes his choice because of the attractiveness of a manufacturer's representation and will be bound by it, the manufacturer is free to express what are only aspirations and gamble on mere probabilities of fulfillment without any risk of liability. In fields of developing technology, the manufacturer would thus enjoy a wide degree of latitude with respect to performance while holding an option to compel the buyer to pay if the gamble should pan out. See Austin Co. v. United States, 314 F.2d 518, 521, 161 Ct.Cl. 76, cert. denied, 375 U.S. 830, 84 S. Ct. 75, 11 L. Ed. 2d 62 (1963). We do not think this the common understanding -- above all as to a contract where the manufacturer expressly agreed to liquidated damages for delay and authorized the purchaser to resort to other sources in the event of non-delivery. Contrast National Presto Industries, Inc. v. United States, 338 F.2d 99, 106-112, 167 Ct.Cl. 749 (1964), cert. denied, 380 U.S. 962, 14 L. Ed. 2d 153, 85 S. Ct. 1105 (1965). If a manufacturer wishes to be relieved of the risk that what looks good on paper may not prove so good in hardware, the appropriate exculpatory language is well known and often used. 

Affirmed.

[1903] 2 K.B. 740

Appeal from a decision of Darling, J.

The plaintiff, Paul Krell, sued the defendant, C.S. Henry, for £50, the balance of a sum of £75, for which the defendant had agreed to hire a flat at 56A, Pall Mall on the days of June 26 and 27, for the purpose of viewing the processions to be held in connection with the coronation of His Majesty. The defendant denied his liability, and counterclaimed for the return of the sum of £25, which had been paid as a deposit, on the ground that, the processions not having taken place owing to the serious illness of the King, there had been a total failure of consideration for the contract entered into by him.

The facts, which were not disputed, were as follows. The plaintiff on leaving the country in March, 1902, left instructions with his solicitor to let his suite of chambers at 56A, Pall Mall on such terms and for such period (not exceeding six months) as he thought proper. On June 17, 1902, the defendant noticed an announcement in the windows of the plaintiff's flat to the effect that windows to view the coronation processions were to be let. The defendant interviewed the housekeeper on the subject, when it was pointed out to him what a good view of the procession could be obtained from the premises, and he eventually agreed with the housekeeper to take the suite for the two days in question for a sum of £75.

On June 20 the defendant wrote the following letter to the plaintiff's solicitor:—

On the same day the defendant received the following reply from the plaintiff's solicitor:—

I am in receipt of your letter of today's date inclosing cheque for £25 deposit on your agreeing to take Mr. Krell's chambers on the third floor at 56A, Pall Mall for the two days, the 26th and 27th June, and I confirm the agreement that you are to have the entire use of these rooms during the days (but not the nights), the balance, £50, to be paid to me on Tuesday next the 24th instant.

The processions not having taken place on the days originally appointed, namely, June 26 and 27, the defendant declined to pay the balance of £50 alleged to be due from him under the contract in writing of June 20 constituted by the above two letters. Hence the present action.

Darling J., on August 11, 1902, held upon the authority of Taylor v. Caldwell and The Moorcock (1889, 14 P.D. 64), that there was an implied condition in the contract that the procession should take place, and gave judgment for the defendant on the claim and counterclaim.

The plaintiff appealed.

Vaughan Williams, L.J. read the following written judgment:— . . . It is said, on the one side [by Krell, the owner of the flat], that the specified thing, state of things, or condition the continued existence of which is necessary for the fulfillment of the contract, so that the parties entering into the contract must have contemplated the continued existence of that thing, condition, or state of things as the foundation of what was to be done under the contract, is limited to things which are either the subject-matter of the contract or a condition or state of things, present or anticipated, which is expressly mentioned in the contract.

The issue in the case is whether the promise to pay for the use of the flat is conditional on the coronation parade taking place.  If it is, the fact that the parade did not take place means Henry, the lessee, is not obligated to pay. 

The claim of the lessor, Krell, is that the promise is conditional on the occurrence of the parade only if the condition was explicitly stated in the contract.

 

(b) False

But, on the other side, it is said that the condition or state of things need not be expressly specified, but that it is sufficient if that condition or state of things clearly appears by extrinsic evidence to have been assumed by the parties to be the foundation or basis of the contract, and the event which causes the impossibility is of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made. In such a case the contracting parties will not be held bound by the general words which, though large enough to include, were not used with reference to a possibility of a particular event rendering performance of the contract impossible. I do not think that the principle of . . . is limited to cases in which the event causing the impossibility of performance is the destruction or nonexistence of some thing which is the subject-matter of the contract or of some condition or state of things expressly specified as a condition of it. I think that you first have to ascertain, not necessarily from the terms of the contract, but, if required, from necessary inferences, drawn from surrounding circumstances recognized by both contracting parties, what is the substance of the contract, and then to ask the question whether that substantial contract needs for its foundation the assumption of the existence of a particular state of things. If it does, this will limit the operation of the general words, and in such case, if the contract becomes impossible of performance by reason of the nonexistence of the state of things assumed by both contracting parties as the foundation of the contract, there will be no breach of the contract thus limited . . . 

The court

 

(b) rejects the claim that the promise is conditional on the occurrence of the parade only if the condition was explicitly stated in the contract.

In my judgment [in this case] the use of the rooms was let and taken for the purpose of seeing the Royal procession. It was not a demise of the rooms, or even an agreement to let and take the rooms. It is a licence to use rooms for a particular purpose and none other. And in my judgment the taking place of those processions on the days proclaimed along the proclaimed route, which passed 56A, Pall Mall, was regarded by both contracting parties as the foundation of the contract; and I think that it cannot reasonably be supposed to have been in the contemplation of the contracting parties, when the contract was made, that the coronation would not be held on the proclaimed days, or the processions not take place on those days along the proclaimed route; and I think that the words imposing on the defendant the obligation to accept and pay for the use of the rooms for the named days, although general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards occurred.

It was suggested in the course of the argument that if the occurrence, on the proclaimed days, of the coronation and the procession in this case were the foundation of the contract, and if the general words are thereby limited or qualified, so that in the event of the non-occurrence of the coronation and procession along the proclaimed route they would discharge both parties from further performance of the contract, it would follow that if a cabman was engaged to take some one to Epsom on Derby Day at a suitable enhanced price for such a journey, say £10, both parties to the contract would be discharged in the contingency of the race at Epsom for some reason becoming impossible; but I do not think this follows, for I do not think that in the cab case the happening of the race would be the foundation of the contract. No doubt the purpose of the engager would be to go to see the Derby, and the price would be proportionately high; but the cab had no special qualifications for the purpose which led to the selection of the cab for this particular occasion. Any other cab would have done as well.  Moreover, I think, that under the cab contract, the hirer, even if the race went off, could have said, "Drive me to Epsom; I will pay you the agreed sum; you have nothing to do with the purpose for which I hired the cab," and that if the cabman refused he would have been guilty of a breach of contract, there being nothing to qualify his promise to drive the hirer to Epsom on a particular day. Whereas in the case of the coronation, there is not merely the purpose of the hirer to see the coronation procession, but it is the coronation procession and the relative position of the rooms which is the basis of the contract as much for the lessor as the hirer; and I think that if the King, before the coronation day and after the contract, had died, the hirer could not have insisted on having the rooms on the days named. It could not in the cab case be reasonably said that seeing the Derby race was the foundation of the contract, as it was of the licence in this case. Whereas in the present case, where the rooms were offered and taken, by reason of their peculiar suitability from the position of the rooms for a view of the coronation procession, surely the view of the coronation procession was the foundation of the contract, which is a very different thing from the purpose of the man who engaged the cab—namely, to see the race—being held to be the foundation of the contract.

The court’s view is that the foundation of the contract between Krell and Henry was to rent the flat in order watch the coronation parade and hence the contract was premised on the assumption by both sides that the parade would occur.  The contrast with the cab case, according to the court is that the foundation of the contract in that case was simply to drive the hirer to Epsom, not to drive the hirer to Epsom in order to watch the Derby. 

(a) True

Each case must be judged by its own circumstances. In each case one must ask oneself, first, what, having regard to all the circumstances, was the foundation of the contract? Secondly, was the performance of the contract prevented? Thirdly, was the event which prevented the performance of the contract of such a character that it cannot reasonably be said to have been in the contemplation of the parties at the date of the contract? If all these questions are answered in the affirmative (as I think they should be in this case), I think both parties are discharged from further performance of the contract . . .

I think this appeal ought to be dismissed.

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Griffith v. Brymer

King's Bench Div., 1903

This was an action brought by Mr. Murray Griffith, of 8, Seamoreplace, Park-lane against Colonel W.E. Brymer, M.P., of 8, St. Jame's-street to recover the sum of 100 pounds paid on an agreement to hire a certain room at 8, St. Jame's-street for the purpose of viewing the Coronation Procession on June 26, 1902.

The facts, so far as the material, were as follows:--At 11 a.m. on June 24, 1902, the plaintiff entered into a verbal agreement with Messrs. Pope, Roach, and Co., the defendant's agents, to take the room for the purpose of viewing the procession on June 26, and handed over his cheque for 100 pounds. It was admitted that the decision to operate on the King, which rendered the procession impossible, had been reached at about 10 a.m. that morning. But neither party was aware of this fact when the agreement was entered into and the cheque given; and it was contended for the plaintiff that as both parties were under a misconception with regard to the existing state of facts about which they were contracting, the plaintiff was entitled to the return of his money. In the course of the argument Clark v. Lindsay, 19 T.L.R. 202, 88 L.T. 198, and Blakeley v. Muller, 19 T.L.R. 186, were cited.

Mr. Justice Wright held that . . . [t]he agreement was made on the supposition by both parties that nothing had happened which made the performance impossible. This was a missupposition on the state of the facts which went to the whole root of the matter. The contract was therefore void, and the plaintiff was entitled to recover his 100 pounds.

The court’s view is evidently that if (1) both parties enter a contract under a mistaken belief that (2) goes “to the whole root of the matter, Top of Form” then the contract is void.