Reliance Cooperage v. Treat
195 F.2d 977 (8th Cir. 1952)
Reliance contracted to buy
300k oak bourbon staves (barrels) from Treat for $450 per thousand, by
December 31st.
The price of raw materials
kept going up and up, and Treat realized that he'd lose a lot of money.
He told Reliance that wanted to raise the price to $625 per thousand.
Reliance refused to pay the
higher price, made an anticipatory breach of the contract, and immediately sued.
Reliance argued that Treat
was liable to pay the difference between the market price in December and the contract price ($450).
Despite the fact that it
was only August and Treat wasn't due to deliver the barrels until
December.
Treat argued that he should
only have to pay the difference between the market price in August and the contract price.
In August, Reliance could
have bought staves from another company at a price that may have been
higher than $450, but was probably less than it was going to be in
December.
Btw, an anticipatory
breach occurs on a clear repudiation
of a party's contract duties before the time has come for performance.
The Trial Court found for
Treat. Reliance appealed.
The Trial Court found that
Reliance could have, upon receiving Treat's refusal to perform, bought similar staves by reasonable efforts
and without undue risk or expense. Therefore, they were only due the
difference between the price at time of refusal and the contract price.
Basically, the Court said
that Reliance could only get as much money as the difference between the
price in August and $450.
The Appellate Court reversed.
The Appellate Court found
that Reliance was entitled to the difference between the market price on
the day Treat was to deliver the barrels (December 31st) minus $450.
The Court noted that that
the doctrine of anticipatory breach
is intended to aid the injured party, and any effort to convert it into a
benefit to the repudiator should be resisted.
Ordinarily there is no duty
to mitigate until there are damages to mitigate, and this would not have
occurred until December 31st. If Treat changed his mind and decided to
comply with the contract, Reliance would have had to accept and pay for
the staves.
When the price is fluctuating,
pinning down when to calculate damages can be very important.
Measuring market price at
the time of the seller's repudiation gives the seller the ability to fix
buyer's damages and may induce the seller to repudiate rather than abide
by the contract.
On the other hand, measuring
damages at the time of performance will tend to dissuade the buyer from
covering, in hopes that the market with continue upward.
Courts came up with the
concept of reasonable time as a
compromise. This means that if the seller repudiates, the buyer's
damages should be calculated by use of the market price at the expiration
of a commercially reasonable time after the buyer has learned of the repudiation.
