In the previous post we looked at
situations where ‘reasonable grounds for insecurity’ concerning the other
party’s performance have arisen, as well as action which can be taken in such a
situation to ‘demand adequate assurance of performance.’ The first sentence of
Section 2-609(1) notes in this regard ‘A contract for sale imposes an obligation on each party that
the other's expectation of receiving due performance will not be impaired.' The
impairment contemplated by Section 2-609 is the result of some behavior by one
of the contracting parties.
Section
2-615 also contemplates a situation where performance is not forthcoming;
however, in this instance, the non performance is not caused by the behaviors
of one of the parties to the transaction.
Rather, the non performance (or partial performance) contemplated by
Section 2-615 is the result of some event which makes performance
‘impracticable.' Section 2-615(1)(a)
reads as follows:
Except so far as a seller may have assumed a greater
obligation and subject to the preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by
a seller who complies with paragraphs (b) and
(c) 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 non-occurrence of
which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or
domestic governmental regulation or order whether or not it later proves to be
invalid.
In order for the event to come within Section 2-615, it must
be of such a nature that the non occurrence of that event was ‘a basic
assumption on which the contract was made.'
The other situation contemplated by
Section 2-615 is where the party who is unable to perform is precluded from
performance by ‘any applicable foreign or domestic governmental regulation.' As
noted in the text, it is irrelevant if the regulation is later proved to be
invalid.
There are
several things which should be noted in the initial discussion of Section
2-615.. First, Section 2-615 deals with
a situation where performance has become ‘impracticable.' This is not the same thing as ‘impossible.' As noted in Official Comment 3 to Section
2-615, the word ‘impracticable’ was used ‘to
call attention to the commercial character of the criterion chosen by this
Article.' Second, although the
section is drafted as pertaining only to the seller, Official Comment 9 states
in part that in certain situations ‘the reason of the present section may well
apply and entitle the buyer to the exemption.' There is case law which supports
that result. Third, a dramatic price
change is not within the purview of Section 2-615. That stated, there must have been some event
that caused the dramatic price change, and that is where the focus should be
directed.
In order to avail oneself of
Section 2-615(1) the party must comply with Sections 2-615(a)&(b). Section
2-615(b) is activated when the triggering event affects only part of a seller’s
capacity to perform and requires an allocation of product by the seller:
Where the causes mentioned in paragraph (a) affect only a
part of the seller's capacity to perform, he must
allocate production and deliveries among his customers but may at his option
include regular customers not then under contract as well as his own
requirements in any manner which is fair and reasonable.
Note, upon activation of Section 2-615(1), the seller ‘at
his option’ may include ‘regular customers not then under contract’, and may
also include its own requirements for further manufacture.
Any allocation must be done in a
‘fair and reasonable manner.' Once
again, we see an opportunity to draft what is, or is not, an allocation which
is fair and reasonable, and if this is done, the inquiry will be limited to:
were the called for standards of ‘fair and reasonable’ met; and if so, were
these standards not ‘manifestly unreasonable’ per Section 1-302. As will be demonstrated shortly, this is one
of several creative drafting provisions that can pay big dividends in the event
of litigation.
Section
2-615(c) states the final requirement for Section 2-615(a) to be properly
utilized:
The seller must notify the buyer seasonably that there will be delay
or non-delivery and, when allocation is required under paragraph (b), of the
estimated quota thus made available for the buyer.
The procedure required for the notice referred to is
contained in Section 2-616(1)(a)(b)(2)(3).*
The general
freedom of contract principle contained in Section 1-302 is explicitly stated
in the first sentence of Section 2-615(a) which states in relevant part as
follows : Except so far
as a seller may have assumed a greater
obligation...
The ‘greater obligation’ does not need to be stated as guarantee of delivery in
a Section 2-615 situation. The greater
obligation can be created through a remedial provision.
Gold
Kist v Stokes 138 Ga. App. 482
(1976), 226 S.E.2d 268 involved
an appeal from a summary judgment. There
were a number of evidentiary issues at the trial court which the appellate
court required to be heard by a jury.
Another issue raised was the failure of the trial court to include the
introductory language of Section 2-615 in its jury instruction as it relates to
‘seller assuming a greater obligation’.
The contract in the Gold Kist case had the following provision:
... [i]f the
producer is unable to deliver the quantity contracted for solely because of reasons
beyond his control, the measure of damages for failure to deliver is the
difference between contract and market price on the day of breach.
In reversing the trial court, the appellate court found that
under the noted provision, seller had ‘assumed a greater obligation’ via the
damage provision, and that the failure of the jury instruction to include the
introductory language of Section 2-615 as it pertained to the assumption of a
greater obligation by the seller was error.
The case
graphically illustrates a point made throughout these posts. Proper drafting
yields great results. The remedial
provision probably got very little notice by the seller during negotiations or
one would assume the seller’s attorney would have objected to the provision. As a result of inclusion in the contract, the
remedial provision effectively overrode the result that would have occurred
under Section 2-615.
____________________________________________________________________________
*(1) Where the buyer receives notification of a material
or indefinite delay or an allocation justified under the preceding section he
may by written notification to the seller as to any delivery concerned, and
where the prospective deficiency substantially impairs the value of the whole contract under the provisions of this Article
relating to breach of installment contracts (Section 2-612), then also as to the whole,
No comments:
Post a Comment