Business Law Chapter 17 Homework May 31 2005 Before The Parties Executed

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Chapter 17

Performance and

Discharge in Traditional

and

E-Contracts

Case 17.1

129 N.E. 889

23 A.L.R. 1429

(Cite as: 230 N.Y. 239, 129 N.E. 889)

JACOB & YOUNGS, Inc.,

manufacture.’ The defendant learned in March, 1915, that some of the pipe, instead of being made in Reading, was the product of

other factories. The plaintiff was accordingly directed by the architect to do the work anew. The plumbing was then encased within

the walls except in a few places where it had to be exposed. Obedience to the order meant more than the substitution of other

pipe. It meant the demolition at great expense of substantial parts of *241 the completed structure. The plaintiff left the work

untouched, and asked for a certificate that the final payment was due. Refusal of the certificate was followed by this suit. The

resulting damage, and will not always be the breach of a condition to be followed by a forfeiture. Spence v. Ham, 163 N. Y. 220,

57 N. E. 412, 51 L. R. A. 238; Woodward v. Fuller, 80 N. Y. 312; Glacius v. Black, 67 N. Y. 563, 566; Bowen v. Kimbell, 203 Mass.

364, 370, 89 N. E. 542, 133 Am. St. Rep. 302. The distinction is akin to that between dependent and independent promises, or

between promises and conditions. Anson on Contracts (Corbin’s Ed.) s 367; 2 Williston on Contracts, s 842. Some promises are

so plainly independent that they can never *242 by fair construction be conditions of one another. Rosenthal Paper Co. v. Nat.

subject-matter, if defective, is in shape to be returned. From the conclusion that promises may not be treated as dependent to the

extent of their uttermost minutiae without a sacrifice of justice, the progress is a short one to the conclusion that they may not be so

treated without a perversion of intention. Intention not otherwise revealed may be presumed to hold in contemplation the

reasonable and probable. If something else is in view, it must not be left to implication. There will be no assumption of a purpose

to visit venial faults with oppressive retribution.

579. Where the line is to be drawn between the important and the trivial cannot be settled by a formula. ‘In the nature of the case

precise boundaries are impossible.’ 2 Williston on Contracts, s 841. The same omission may take on one aspect or another

608. There is no general license to install whatever, in the builder’s judgment, may be regarded as ‘just as good.’ Easthampton L.

& C. Co., Ltd., v. Worthington, 186 N. Y. 407, 412, 79 N. E. 323. The question is one of degree, to be answered, if there is doubt,

by the triers of the facts (Crouch v. Gutmann; Woodward v. Fuller, supra), and, if the inferences are certain, by the judges of the

law (Easthampton L. & C. Co., Ltd., v. Worthington, supra). We must weigh the purpose to be served, the desire to be gratified,

the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfillment is to be

from cellar to roof. In point of fact, the plaintiff never reached the stage at which evidence of the extent of the allowance became

necessary. The trial court had excluded evidence that the defect was unsubstantial, and in view of that ruling there was no

occasion for the plaintiff to go farther with an offer of proof. We think, however, that the offer, if it had been made, would not of

necessity have been defective because directed to difference in value. It is true that in most cases the cost of replacement is the

measure. Spence v. Ham, supra. The owner is entitled to the money which will permit him to complete, unless the cost of

Case 17.2

C.A.7 (Wis.),2009.

Wisconsin Elec. Power Co. v. Union Pacific R. Co.

557 F.3d 504

United States Court of Appeals,

Seventh Circuit.

WISCONSIN ELECTRIC POWER COMPANY, Plaintiff-Appellant,

UNION PACIFIC RAILROAD COMPANY, Defendant-Appellee.

322 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW

No. 08-2693.

Argued Jan. 7, 2009.

Decided March 2, 2009.

POSNER, Circuit Judge.

WEPCO, an electric utility that is the plaintiff in this diversity suit for breach of contract (governed by Wisconsin law), appeals from

the grant of summary judgment to the defendant, the Union Pacific railroad. The contract was for the transportation of coal to

WEPCO from coal mines in Colorado between the beginning of 1999 and the end of 2005. The appeal presents two issues:

whether a force majeure clause in the contract authorized the railroad to increase its rate for shipping the coal, and whether the

railroad breached its duty of good-faith performance of its contractual obligations by failing to ship the tonnage requested by

WEPCO on railcars supplied by the railroad.

[1] The doctrine of impossibility in the common law of contracts excuses performance when it would be unreasonably costly (and

sometimes downright impossible) for a party to carry out its contractual obligations. If the doctrine is successfully invoked, the

contract is rescinded without liability. The standard explanation for the doctrine is that nonperformance is not a breach if it is

caused by a circumstance “the non–occurrence of which was a ‘basic assumption on which the contract was made.’ ”

Restatement

(Second) of Contracts,

introductory note to ch. 11, preceding § 261 (1981), quoting UCC § 2-615. But this explanation leaves

unexplained why parties to a *506 contract would have assumed that a condition would not occur that has occurred. Was it just a

lack of foresight? Or is the idea behind the doctrine, rather, that the parties, had they negotiated with reference to the contingency

that has come to pass and has made performance infeasible or fearfully burdensome, would have excused performance? The

Cir.1974); 2 E. Allan Farnsworth,

Farnsworth on Contracts

§ 9.6, p. 643 (3d ed.2004)-a guess at what the parties would have

provided in their contract had they thought about the contingency that has arisen and has prevented performance or made it much

299-300 (1881); see

Field Container Corp. v. ICC,

712 F.2d 250, 257 (7th Cir.1983). The key is

binding

promise. To defeat the

application of the doctrine of impossibility the contract must state that the promisor must pay damages even if he commits a *507

breach that could not have been prevented at a reasonable cost.

Modern contracting parties often do contract around the doctrine, though not by making the promisor liable for any and every

failure to perform-rather by specifying the failures that will excuse performance. The clauses in which they do this are called force

the contract, and some of the other provisions in the article do specify contingencies that would excuse performance, including

certain “acts of God.” But the provision at issue merely provides that if the railroad is prevented by “an event of Force Majeure”

from reloading its empty cars (after it has delivered coal to WEPCO) with iron ore destined for Geneva, Utah, it can charge the

higher rate that the contract makes applicable to shipments that do not involve backhauling. Cf. 2 Farnsworth,

supra,

§ 9.1, p. 585;

Corbin on Contracts

§ 74.19, p. 113 (Joseph M. Perillo ed.2008). For example, the rate for coal shipped from one of the

final closing the railroad wrote WEPCO to declare “an event of Force Majeure” and that henceforth it would be charging WEPCO

the higher rate applicable to shipments without a backhaul. It did not attempt to make the rate change retroactive. Had it invoked

the force majeure clause when the steel mill first shut down, WEPCO would have incurred an extra $7 million in shipping *508

charges between then and the belated declaration of force majeure.

Despite this windfall, WEPCO argues that the railroad broke the contract by invoking the force majeure clause when it did. The fact

that the railroad didn’t invoke the clause earlier shows that the shutting down of the steel mill did not prevent the railroad from

charging the low, backhaul rate. Well of course not; it is never “impossible” to offer a discount. But what the contract says is that

the railroad may charge the higher rate if it is prevented from reloading its cars, rather than if it is prevented from charging a lower

rate.

WEPCO points out that Article XI requires prompt notification of an event of force majeure and also requires the invoker to make

reasonable efforts to eliminate or abate the force majeure. It argues that the railroad violated its duty of prompt notice and by doing

so waived its right to declare a force majeure. But another clause in the contract provides that a failure of a party to insist on a right

that the contract confers on it shall not be deemed a waiver. That scotches WEPCO’s argument except insofar as it wishes to

complain not about the declaration of force majeure as such but simply about the breach of the duty of prompt notice.

A “no waiver” clause is appropriate in a complex multiyear contract that imposes (as we will see) duties of performance on both

parties, as distinct from a simple sales contract in which one party performs and the other pays. If a party lost a contract right

through waiver by failing to assert it as soon as it was violated, the process of amicable adjustment of contingencies bound to arise

in the course of performing the contract would be impeded by premature assertion of legal claims.

Monarch Coaches, Inc. v. ITT

Industrial Credit,

818 F.2d 11, 13 (7th Cir.1987);

S & R Co. of Kingston v. Latona Trucking, Inc.,

159 F.3d 80, 85-86 (2d Cir.1998);

S.H.V.C. v. Roy,

188 Conn. 503, 450 A.2d 351, 353 (1982); Sean J. Young, “Reaping the Benefits of ‘Forbearance’ in Contract

277 (7th Cir.1996);

DeValk Lincoln Mercury, Inc. v. Ford Motor Co.,

811 F.2d 326, 334 (7th Cir.1987);

Klipsch, Inc. v. WWR

Technology, Inc.,

127 F.3d 729, 735-36 (8th Cir.1997), there is still some authority for treating them as themselves waivable. E.g.,

Exxon Corp. v. Crosby-Mississippi Resources, Ltd.,

40 F.3d 1474, 1491-92 (5th Cir.1995);

Westinghouse Credit Corp. v. Shelton,

645 F.2d 869 (10th Cir.1981); but see

DeValk Lincoln Mercury, Inc. v. Ford Motor Co., supra,

811 F.2d at 334. But if that notion

were taken literally, no-waiver clauses would be worthless. Fortunately, it is not taken *509 literally; the waiver of a no-waiver

2005), which, however, for what it is worth, rules that no-waiver clauses are enforceable and does not suggest any limitations on

their enforceability.

A claim arising from breach of the prompt-notice clause might have merit were there doubt whether there really had been an event

of force majeure. The argument would be that for want of receiving prompt notice WEPCO had lost an opportunity to investigate

and discover that there was no such event. But WEPCO does not suggest that the steel mill may not really have shut down, for

good as it later turned out, in November of 2001. It does argue that if notified promptly of the shut down it might have explored

alternative ways of obtaining coal at a rate below the higher, no-backhaul rate. The contract required WEPCO to ship specified

minimum tonnages of coal by the railroad, but it shipped more, and conceivably would have shipped less-perhaps making up the

difference from some other coal mine-had it been able to find a cheaper rate from some other railroad. But there is no evidence

that such alternatives ever existed, or, more to the point, existed in 2001 but evaporated by 2004.

Not only has WEPCO failed to show any detrimental reliance on the failure to receive prompt notice of the higher rate; it refuses,

contrary to the most elementary principles of damages, to acknowledge that had it relied to its detriment any damages caused by

that reliance would have to be reduced by $7 million. That is the cost WEPCO saved as a result of the railroad’s forbearance to

invoke the force majeure clause at the earliest possible opportunity.

WEPCO argues that the railroad made no reasonable effort to abate the force majeure, as the contract required. The railroad did

not explore the possibility of finding some other commodity, besides iron ore, to ship west. (It couldn’t be iron ore, because Geneva

Steel was the only buyer of iron ore served by the railroad.) But that is not what the duty of abatement contemplated. The event of

force majeure-the event that the railroad was required to exert reasonable efforts to abate-was an event that prevented the railroad

from reloading its cars with iron ore for the trip back west.

Had Geneva Steel owed the railroad some small amount of money and begged it to forbear to sue to collect because that would

force the company into bankruptcy, forbearance to sue might conceivably be a reasonable effort to avoid the railroad’s having to

send its trains west without a backhaul, and therefore an effort that the railroad was obligated to undertake. But there is no

suggestion of that. WEPCO’s argument, rather, is that the railroad should have looked for something else to carry back in its trains.

But that would have placed on the railroad a burdensome open-ended duty to explore the possibility of reconfiguring its operations,

which would have required searching for, finding, and making contracts with other shippers and perhaps purchasing or renting

railcars optimized to carry those shippers’ commodities. Disputes over the adequacy of the railroad’s efforts would present

CHAPTER 17: PERFORMANCE AND DISCHARGE 325

Case 17.3

Tex.App.-Houston [1 Dist.],2010.

Merry Homes, Inc. v. Chi Hung Luu

— S.W.3d —-, 2010 WL 547373 (Tex.App.-Hous. (1 Dist.))

Court of Appeals of Texas,

Chi Hung Luu void for illegality, since the lease only authorized the operation of a nightclub or bar at the premises and

Luu was unable to obtain a liquor license due to the premises’ proximity to a public school. The trial court awarded

Luu $6000 for the security deposit, $25,300 in attorney’s fees, and denied Merry Homes’ counterclaim for unpaid rent.

In nine issues, Merry Homes (1) challenges the legal and factual sufficiency of fifteen different findings of fact and

conclusions of law; (2) contends the trial court erred in holding the lease void for illegality, using an admission made

specialized in obtaining liquor licenses, to discuss the requirements for such a license. The representatives of Kim

Marketing informed Luu that he did not need to secure a lease before he applied for a liquor license, though Yu, as

the landlord’s representative, had to supply lease information on the license application. In December 2004, Luu

submitted a proposal of lease terms to Merry Homes, including proposed monthly rent ranging from $7000 to $7700

for a five year lease term, a security deposit of $7000, and Luu’s right to terminate the lease with forty-five days’

other” purpose. The lease also prohibits Luu from using the premises for “any activity that violates any applicable law,

regulation, zoning ordinance, restrictive covenant, [or] governmental order” or for “any activity that violates any

applicable federal, state, or local law.” An additional provision requires Luu to “satisfy [himself] that the leased

premises may be used as [Luu] intends by independently investigating all matters related to the use of the leased

premises or Property.”

After the meeting with Yu, Luu began investigating the possibility of opening a restaurant instead of a bar. Luu

testified that a restaurant required a full kitchen and thus a significantly more expensive build-out than a bar. Luu

ultimately determined that opening a restaurant instead of a bar would not be financially feasible.

Merry Homes refused to refund Luu’s deposit or cancel the lease. Luu sought a declaratory judgment that the lease

was void since it could not be performed legally, and also asserted claims of common law and statutory fraud,

Discussion

Standard of Review

In an appeal from a bench trial, the trial court’s findings of fact have the same weight as a jury verdict.

HTS Servs.,

Inc. v. Hallwood Realty Partners, L.P.,

190 S.W.3d 108, 111 (Tex.App.-Houston [1st Dist.] 2005, no pet.). We review

a trial court’s findings of fact under the same legal and factual sufficiency of the evidence standards used when

evidence if a reasonable fact-finder could do so, and disregard contrary evidence unless a reasonable fact-finder

could not.

See id.

at 827. “[F]indings of fact bind an appellate court only if the findings are supported by evidence of

probative force.”

Thomas v. Casale,

924 S.W.2d 433, 437 (Tex.App.-Fort Worth 1996, writ denied);