Canadian Industrial Alcohol Co. Ltd. v. Dunbar Molasses Co.

New York Court of Appeals · 1932 · Contracts

Contractsexecutory contractimplied conditionimpossibilitysource of supplymiddleman sellerreduced outputtacit presupposition

Facts

On December 27, 1927, the defendant accepted the plaintiff's order for approximately 1,500,000 gallons of refined blackstrap molasses of the usual run from the National Sugar Refinery in Yonkers, with shipments to begin after April 1, 1928, during warm weather. After April 1, 1928, the defendant delivered only 344,083 gallons and then failed to deliver more. During the life of the contract, the refinery's output was only 485,848 gallons, much less than its capacity, and 344,083 gallons were allotted to the defendant and shipped to the plaintiff. The defendant claimed its duty to deliver was proportionate to the refinery's willingness to supply and was discharged when output was reduced.

Issue

Was the seller's duty to deliver the contracted quantity of molasses implicitly conditioned on the named refinery producing enough molasses or choosing to supply enough molasses to the seller, so that reduced output discharged the seller's remaining duty? Also, was the buyer required to accept substitute performance offered by the seller in order to limit damages?

Rule

A promisor is discharged only when the continued existence of a special group of circumstances appears from the contract, interpreted in its setting, to have been a tacit or implied presupposition of the parties conditioning their belief in a continued obligation. A middleman who contracts in its own name to supply goods from a particular source is not discharged merely because that source reduces output at will, especially where the promisor did not secure or attempt to secure an enforceable supply commitment and the buyer was not informed that performance depended on one. A buyer keeping the contract alive is not required to accept a substitute tender offered by the defaulting seller merely as an accommodation and not as a matter of obligation.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lakeside Ferments, a distributor in Buffalo, agreed in its own name to sell 800,000 gallons of corn syrup to Orion Foods in Cleveland, describing the goods as 'standard syrup from the Harbor Point plant in Toledo.' Lakeside never obtained any binding commitment from the Toledo plant. When the plant later chose to cut production because margins were poor, Lakeside delivered only part of the order and claimed discharge.

If Orion sues for breach, which result is most consistent with the governing rule?

Explanation. The majority held that a middleman seller contracting in its own name is not discharged merely because the named source reduces output at will. The key question is whether continuation of the special circumstances was a tacit presupposition of the bargain. A mere source reference is insufficient, and the seller's failure to secure or attempt to secure an enforceable supply arrangement weighs strongly against discharge. (Derived from Canadian Industrial Alcohol Co. Ltd. v. Dunbar Molasses Co. (1932).)