Opinion ID: 426310
Heading Depth: 2
Heading Rank: 1

Heading: The Large Valve Order

Text: 34 According to the district court, CIL's failure to fill a Zidell order for large valves constituted a breach. CIL does not dispute that the order in fact was not filled, but it claims that Energoinvest refused to manufacture valves of that size, and that this refusal rendered CIL's performance under the contract impossible under Or.Rev.Stat. Sec. 72.6150 (U.C.C. Sec. 2-615). In order for the district court to direct a verdict on the issue of breach, it must have found, as a matter of law, that the defense of Sec. 72.6150 did not apply. We think the evidence was sufficient to reach the jury on this question. 35 Defendants apparently concede that the evidence did not support an inference that their failure to perform was excused by the defense of impossibility unless the contract at issue was a contract involving an agreed source. Cf. Savage v. Peter Kiewit Sons' Co., 249 Or. 147, 152-54, 432 P.2d 519, 522-23 (1967) (discussing doctrine of impossibility). Here, however, the district court explicitly construed the contract to mean that Zidell was to be the exclusive distributor in the United States of Lunkenheimer International valves. In other words, of the Lunkenheimer International valves that were manufactured by Energoinvest in Yugoslavia. (Tr. 1472.) (Emphasis Added.) We see no error in this construction. The price charged by CIL to Zidell was keyed to the price charged by Energoinvest to CIL; it is difficult to imagine a contract with such a provision in which there was no agreed source. 36 Given that the contract involved an agreed source, the provisions in U.C.C. Sec. 2-615 official comment 5 are pertinent. The thrust of that comment is that a seller claiming the benefit of a commercial impracticability defense when the contract contemplates an agreed source must ordinarily show two things: (1) the seller must have employed all due measures to assure that the agreed supplier would perform; and (2) the seller must have turned over to the aggrieved buyer its rights against the supplier corresponding to the seller's claim of excuse. 37 With respect to the first element, defendants point out that an official of CIL testified that he followed up with Energoinvest many times to prevail upon it to produce the valves and that CIL sent representatives to Energoinvest's manufacturing plant in Yugoslavia to persuade Energoinvest to manufacture the valves. Viewing the evidence in the light most favorable to CIL, it is possible for reasonable minds to conclude that CIL employed all due measures to assure performance by Energoinvest. 38 With respect to the second element, Zidell asserts that there is no evidence to the effect that defendants turned over to them any rights of any kind against Energoinvest. Defendants do not dispute this assertion. However, the inquiry does not end there. The relevant portion of official comment 5 to U.C.C. Sec. 2-615 reads as follows: 39 [An excuse under this section] should not result in relieving the defaulting supplier from liability nor in dropping into the seller's lap an unearned bonus of damages over. The flexible adjustment machinery of this Article provides the solution under the provision on the obligation of good faith. A condition to his making good the claim of excuse is the turning over to the buyer of his rights against the defaulting source of supply to the extent of the buyer's contract in relation to which excuse is being claimed. 40 The condition of tendering rights, as stated in the comment, cannot be discerned from the language of U.C.C. Sec. 2-615 alone. It is certainly one fact suggesting that CIL did not act consistently with the obligation of good faith imposed by U.C.C. Sec. 1-203, Or.Rev.Stat. Sec. 71.2030. We decline to hold, however, that a failure to tender rights against the supplier constitutes a per se violation of the obligation of good faith. 3 It is not hard to imagine situations in which a seller could reasonably and in good faith conclude that immediately delivering a lawsuit into the hands of the buyer would be counterproductive for all parties concerned. Moreover, [r]ather than mechanically apply any fixed rule of law, where the parties themselves have not allocated responsibility, justice is better served by appraising all of the circumstances, the part the various parties played, and thereon determining liability. Mishara Construction Co. v. Transit-Mixed Concrete Corp., 365 Mass. 122, 130, 310 N.E.2d 363, 368 (1974) (interpreting U.C.C. Sec. 2-615) (quoting Badhwar v. Colorado Fuel & Iron Corp., 138 F.Supp. 595, 607 (S.D.N.Y.1955), aff'd, 245 F.2d 903 (2d Cir.1957)). On remand, therefore, the jury should be instructed to decide whether, given all facts and surrounding circumstances, CIL acted consistently with its obligation of good faith and fair dealing in failing to tender to Zidell its rights against Energoinvest relating to its contractual obligations to Zidell.