Chapter 8 Performance and Breach

p. 736

New England Structures v. Loranger

Facts: Loranger (General Contractor) contracted with New England to install a

gypsum roof deck in a school. The K was made in July 1961. New England began
work on Nov. 24, 1961 and received a ‘termination telegram’ on Dec. 18, 1961
stating the reason for termination was b/c New England had failed to provide
enough properly skilled workers. Loranger engaged the services of another Sub at a
greater expense.

Loranger brought forth this action to recover from New England, damages caused
by an alleged breach of K.

New England submitted a cross claim.

Trial court found in favor of New England.

Issue: Whether Loranger by its termination telegram confined the justification for
its notice of termination to New England’s repeated refusal to provide adequately
skilled workers. Holding: NO

Rule: When a party terminates an agreement based off of certain claims, can later
rely on different claims not communicated during litigation, unless the D can show a
measure of reliance on those claims for his defense.

Analysis:

Conclusion: Therefore we think Loranger is not barred from asserting grounds not
mentioned in its telegram unless New England relied to its detriment.

Section 5: Prospective Nonperformance

(A) Anticipatory Repudiation

Our concern is with the consequences of a repudiation when it is not

accompanied by a breach by nonperformance. Such a repudiation is often
called an anticipatory repudiation b/c it occurs BEFORE the time for
performance has arrived.

We will consider 5 questions:

1. Is the recipient of a repudiation free to make other arrangements (i.e.

mitigate)? Y
2. Can the recipient of a repudiation go to court immediately, before
performance is due? Y
3. Can the recipient of a repudiation ignore the repudiation and await
performance? Y
 4. What are the consequences if the recipient of a repudiation urges
retraction of the R. ?
5. Can a party that has repudiated w/draw the repudiation? Y, if the other
party has relied.

Hochester v. De La Tour

Facts: Hochester had agreed to serve as a courier for De La Tour during a 3 month
tour of Europe to being on June 1st, 1852. De La Tour had agreed to pay Hochester
10 L per month for the tour of Europe. Before June 1st, De La Tour cancelled
Hochester services and Hochester sues.

Issue: Whether the actions by De La Tour constitute a repudiation, in which

Hochester may seek damages? Holding: YES

Rule: When 2 parties agree to a K that will not be performed until some future date,
they impliedly promise to avoid actions which would be inconsistent with their
agreement. However upon an inconsistency by one party there seems no reason for
requiring the other party to wait till the day arrives before seeking his remedy by
action.

Analysis: Here, it would be unreasonable to allow De La Tour’s words to carry less

force than their actions and reasonable to allow an option to the injured party,
either to sue immediately or to wait till the time when the act was to be done.

Conclusion: Judgment for P.

Kanavos v. Hancock Bank & Trust

Facts:

McCloskey & Co. v. Minweld Steel Co.

Facts: McCloskey contracted with Minweld to supply and erect all of the structural
steel required on two buildings to be built on the grounds of the Hollidaysburg State
Hospital and to furnish all of the long span steel joists required in the construction of
one of these tow buildings.

Issue: Whether the letter written to McCloskey stating difficulties in obtaining the
steel and consequently asking McCloskey for help in procuring the necessary steel
amounted to an anticipatory repudiation of the K. Holding: NO

Rule: In order to give rise to a renunciation amounting to a breach of K there must

be an absolute and unequivocal refusal to perform or a distinct and positive
statement of an inability to do so.

Analysis: Here, the letter written to McCloskey explained Minweld’s difficulty in

obtaining the necessary steel and asked McCloskey’s assistance in procuring it. The
letter specifically stated “We are as anxious as you are that there be no delay in the
final completion of the buildings or in the performance of our K.

Conclusion: Judgment for D AFFIRMED.

CL Maddox v. Coalfield Services

Facts: CL Maddox contracted with Coalfield Services to demolish a loading facility

in an underground mine. Coalfield offered to do the job for $230k and have it
completed in 3 weeks w/ biweekly progress payments.

Coalfield’s crew traveled to the site and began work on March 20. On April 8,
Coalfield stopped work b/c Maddox never signed the K after repeated attempts from
Coalfield. It faxed Maddox an invoice for 45% completion of the job at $103,500.
Maddox replied back seeking to accept paying Coalfield conditioned on Coalfield
signing a liquidated damages clause stating that Coalfield will pay $1000 per day
past a re-established 4 week deadline to complete the original project. Coalfield
refused and never resumed work.

Maddox sued for damages for having to hire a replacement to complete the project
and Coalfield countersued for $103,500 for the services rendered.

Issue: Whether Coalfield was justified in stopping work in anticipation of a

repudiation by Maddox by Maddox not having sign the K. Holding: YES

Rule: A substantial interruption constitutes a breach of K, unless excused by a

party’s own breach or anticipatory repudiation.

Analysis: Here, Maddox’s refusal for 3 weeks to sign Coalfield’s proposal, or even
to send an acceptance with nonconforming terms, or even just to respond somehow
to Coalfield’s repeated demands rather than simply ignore them, gave Coalfield
substantial grounds for interrupting its work in order to avoid running up additional
costs without any assurance of payment. Furthermore, the event that happened
later (seeking to add additional terms) is evidence that the earlier suspicions that
precipitated the stoppage were indeed reasonable.

Conclusion: Judgment for D.

 (A)Anticipatory Repudiation
i.Permissible Responses to Repudiation

The recipient of a repudiation may treat the repudiation as a breach or not. If the
recipient does not treat the repudiation as a breach, “he keeps the K alive for the
benefit of the other party as well as his own”.

Cosden Oil v. Karl Helm

Facts: During the first three months of 1979 when the market for polystyrene, a
petroleum derivative used to make molded products, was steadily rising, Helm, an
international trading company contracted with Cosden Oil, a producer of chemical
products to supply a very large quantity of polystyrene.

Cosden Oil began production of Order 4 and supplied in two different shipments a
partial delivery of high impact polystyrene. During this time Iran, a major supplier of
petroleum was undergoing political unrest coupled with domestic problems at two
of Cosden’s production plants caused Cosden to cancel the remainder of Order 4.

Issue: Whether damages caused by Cosden’s anticipatory repudiation should be

measured during a commercially reasonable amount of time while waiting for the K
to be performed. Holding: YES

Rule: In the relatively rare case where seller anticipatory repudiates and buyer
does not cover, § 2.610 authorizes the aggrieved party to await performance for a
commercially reasonable time before resorting to his remedies of cover or
damages. If an aggrieved party awaits performance beyond a commercially
reasonable time he cannot recover resulting damages which he should have
avoided.

p.764 When a buyer chooses not to cover, but to seek damages, the market is
measured at the time he could have covered - a reasonable time after repudiation.
This statement seems to contradict the above 610 statement.

Analysis: This suggests that an aggrieved party can recover damages where the
market rises during the commercially reasonable time he awaits performance. In
the midst of a rising market, measuring market price at the time of seller’s
repudiation gives seller the ability to fix buyer’s damages and may induce seller to
repudiate rather than abide by the K.

Conclusion: The district court determined that Helm was entitled to recover in
damages representing the difference b/t the K price and the market price at a
commercially reasonable time after Cosden repudiated its delivery obligations.
United States v. Seacoast Gas

Facts: Seacoast contracted with the Public Housing Authority to supply gas during
the period from April 15 to June 15 of the following year. During October Seacoast
wrote the P a letter of anticipatory repudiation based on their belief that the P was
going to breach the K. The letter indicated Seacoast’s intention to cancel service as
of November 15. The P responded by letter indicating that neither party held the
right to breach but that they proposed to advertise for bids to insure a continued
supply of gas if Seacoast’s breach persisted. Bids were solicited and a low bidder
was identified. At that point the P notified Seacoast to retract the repudiation within
3 days of the letter date. If no retraction, then P would be compelled to accept the
low bid and hold Seacoast and its surety liable for breach of K. Seacoast didn’t
respond at that time but waited a few days prior to its November 15th deadline to
attempt to retract the repudiation.

Issue: Whether Seacoast w/drew its repudiation prior to the P either changing
positions or relying on it, thus healing the breach and restoring the K to its original
vitality. Holding: No, Seacoast did not effectively retract its repudiation

Rule: All that is required to close the door to repentance is definite action indicating
that the anticipatory breach has been accepted as final and this requisite can be
supplied either by the filing of a suit OR a firm declaration.

Question: What was considered to be the Firm Declaration? 1. Govts. response

p.767 OR the 3 day letter sent once the low bidder was identified, OR BOTH.

Analysis: Here Seacoast argues that the P did not “accept the bid of Trion Gas”
until it signed the new K, effectively not relying or changing positions until that
point. The singing of the new K didn’t take place until after Seacoast retracted in
writing their repudiation. However, the error of this lies in the fact that it confuses
the acceptance of the bid with the signing of the new K. The locus poenitentiae
ended within the three day notice the P sent to Seacoast.

Conclusion: Judgment REVERSED in favor of P.

UCC 2-611 it is enough that the aggrieved party “has indicated that he considers
the repudiation final”.
Restatement 256 adopts the same formula.

So no step in reliance is required to close the door to repentance. Is this b/c the
repudiation is treated as an offer that can be accepted?

Restatement 256 does say it is the aggrieved party’s material change of position in
reliance, it also states ‘it is undesirable to make the injured party’s right exclusively
on such a vague criterion.
 (B)Assurance of Due Performance

The common law gave no right to such assurance. The drafters of the Code saw a
need for an exception and this exception was carried over to the Restatement
Second. Ordinarily an obligee has no right to demand assurances by the obligor that
the latter will perform when his performance is due.

However, a K imposes an obligation on each party that the other’s expectation of

receiving due performance will not be impaired (UCC 2-609). When an oblige
reasonably believes that the obligor will commit a breach by nonperformance that
would of itself give him a claim for damages for total breach (§ 243), he may, under
the rule be entitled to demand assurance of performance.

Pittsburgh Steel v. Brookhaven Manor Water

Facts: Brookhaven contracted with Pittsburg Steel to build an elevated tank. The
original proposal called for progressive payments to PDM, the revised calling for no
payment until 30 days after completion and testing. PDM accepted the revised
payment terms. Later PDM heard that Brookhaven was applying for a loan and on
this knowledge Pittsburgh Steel wrote a letter to the lender asking for $175k to be
set aside for the purpose of an escrow account in which to be paid. The loan did not
go through (perhaps b/c of this action). Then Pittsburgh Steel wrote the
president of Brookhaven demanding a personal guarantee of payment and the
requirement of an escrow account. Brookhaven’s president declined both requests
but did offer a statement of personal worth being sufficient. PDM stopped
production.

PDM sued Brookhaven charging repudiation and Brookhaven countersued.

Jury returned a verdict for PDM, but the trial court entered a judgment
notwithstanding the verdict in Brookhaven’s favor.

Issue: Whether the PDM’s letters rose to the level of asking for assurances and if so
were these requests for assurance constitute reasonable grounds for insecurity
under UCC 2-609. Holding: YES

Rule: To trigger the applicability of UCC 2-609, is that the expectation of due
performance on the part of the other party entertained at contracting time no
longer exists b/c of “reasonable grounds for insecurity” arising.

Analysis: Here, the K negates the existence of any basis for insecurity at the time
of the K when PDM was willing to wait 30 days beyond completion for payment.
PDM’s letter that the order was being held in abeyance until receipt of notification
of an escrow account was based on “good business”, but not upon any change of
conduct bearing upon Brookhaven’s ability to discharge its payment obligation.
Conclusion: Judgment notwithstanding the verdict in Brookhaven’s favor
AFFIRMED.

Norcon Power Partners v. Niagra Mohawk Power Corp.

Chapter 9 Basic Assumption, Mistake, Impracticability

& Frustration

Mistake – when a party’s performance is impeded or expectations are seriously

thwarted by circumstances that existed when the K was made but were not known
to the parties.

Impossibility/Impracticability - when a promisor gets relief on the ground that a

supervening turn of events has impeded its performance.

Frustration of Purpose - The party claiming an excuse cannot say that its
performance was impeded by a supervening event; rather, some turn of events has
thwarted that party’s object in making the K.

Section 1 Mutual Mistake

Stees v. Leonard

Facts: Stees (P landowner) contracted with Leonard (contractor) to build a house of

which Stees provided the specifications which included specs for the foundation but
not exclusive. The D commenced on the construction and had carried it to the
height of three stories when it fell to the ground. The next year D began again
carrying to the same height and it fell again whereupon the D refused to perform
the K. The D cites that they followed the specs provided by the P and came to the
conclusion that the soil was to blame, i.e. quicksand.

Issue: Whether the condition of the soil rendered their performance of the K an
impossibility. Holding: NO

Rule: If a man bind himself by a positive express K, to do an act in itself possible,

he must perform his engagement unless prevented by the act of God, the law, or
the other party to the K. No difficulty short of absolute impossibility will excuse him
from doing what he has expressly agreed to do.

Analysis: Here, whatever was necessary to be done in order to complete the

building, they were bound by the K to do b/c they have agreed to do everything
necessary to erect and complete the building. If the building could not be completed
w/out other stronger foundations than the footings specified, they were bound to
furnish such other foundations. If the land needed draining, then they must drain
the land.

Conclusion: Judgment in favor of the P AFFIRMED.

Renner v. Kehl

Facts: Renner contracted to purchase leases on 2,000 acres of unimproved land in

AZ for the sole purpose of cultivating jojoba commercially which both parties were
of the opinion that the land had adequate natural water supplies near the surface of
the ground.

After a down payment was given to secure the property, the P spent money
conveying the land and drilling five test wells none of which yielded adequate water
in terms of quality and quantity.

The P brought forth this action against the D for rescission.

Trial Court found for the P.
Ct. of Appeals AFFIRMED.

Issue: Whether the P is entitled to reliance expenses in the amount of $229k when
rescission is based upon mutual mistake. Holding: YES, absent proof of breach for
fraud or misrepresentation.

Rule1: Mutual mistake of material fact is an accepted basis for rescission when it
constitutes “an essential part and condition of the K”.

Rule2: When a party rescinds a K on the ground of mutual mistake he is entitled to

restitution for any benefit that he has conferred on the other party by way of part
performance or reliance minus any interest in property that he has received in the
bargain.

Analysis1: Here, the trial court found that the sole purpose of the K was to enable
P to grow jojoba which depends upon an adequate water supply, specifically finding
‘There would have been no sale if both seller and buyer had not believed it was
possible to grow jojoba commercially.

Analysis2: Restitutionary recoveries are designed to avoid unjust enrichment on

the part of the D. Thus the D is generally liable for restitution of a benefit that would
be unjust for him to keep, even though he gained it honestly.

Conclusion: Trial Court AFFIRMED in part, and REVERSED in part.

2. Impracticability of Performance

Mineral Park Land v. Howard

Facts: Howard contracted to buy all the needed loose gravel from Mineral Park for
the purpose of building a bridge. It was soon discovered afterwards that a lot of the
needed gravel was under water and the cost of extracting this gravel would be
prohibitive.

Issue: Whether the pre-existence of the condition of the gravel at the time of K as
opposed to being supervening, relieves a buyer from his duties if he can’t perform
them in an ordinary manner without incurring prohibitive costs. Holding: YES

Rule: The court can excuse a buyer from his duties if he can’t perform them in an
ordinary manner and without paying prohibitive cost even though there is an
existing impracticality as opposed to a supervening one.

Analysis: Here, the difference in cost b/t using Mineral Park’s underwater gravel
and someone else’s gravel is so high rendering it impractical.

Conclusion:
Supervening Events

According to the UCC, impracticability is a defense for performance in the sale of

goods (2-215). Today courts tend to adopt the impracticability test for contract
cases in general.

UCC 2-613: A seller is excused from his duty if “the K requires for its performance
goods indentified before the K is made, and the goods suffer casualty w/out fault of
either party before the risk of loss passes to the buyer.

Taylor v. Caldwell

Facts: D (Caldwell) contracted to let the Surrey Gardens and Music Hall to P
(Taylor) for four days for the purpose of giving four grand concerts agreeing to pay
100L at the close of each day. The P spent money in advertising and general
expenses incurred preparing for the concert. The Music Hall burned w/in a week of
the first scheduled concert. The evidence shows that neither party caused the fire,
however the P Taylor sued alleging breach of K.

Issue: Whether the loss which the Ps have sustained is to fall upon the Ds.
Holding: NO

Rule: In the absence of any express or implied warranty that the thing shall exist
(in this case the burning of the Music Hall), the K is not to be construed as a positive
K, but as subject to an implied condition that the parties shall be excused in case
performance becomes impossible from the perishing of the thing w/out default of
the contractor.

Analysis: Here, the possibility of the burning of the Music Hall was not incorporated
into the K, therefore was subject to an implied condition excusing the parties in the
event it happened.
Impossibility and Impracticability of Performance Under Article 2

Transatlantic Financing Corp. v. United States

Facts: