United States v. Wegematic Corp.

United States Court of Appeals for the Second Circuit · 1966 · Contracts

360 F.2d 674 (1966)

Updated July 26, 2026

Contractscommercial impracticabilityUCC 2-615assumption of risktechnological difficultyseller liabilitygovernment contractsliquidated damages

Facts

The Federal Reserve Board solicited proposals for a general-purpose electronic digital computing system and stressed early delivery. Wegematic proposed its new ALWAC 800 as a "truly revolutionary system" using the latest technical advances and agreed to deliver by June 30, 1957, with $100 per day liquidated damages for delay and a clause making it liable for excess costs if the Board procured substitute services elsewhere. Wegematic later announced repeated delays, attributed them to redesign and engineering difficulties, and ultimately stated it had become impracticable to deliver the ALWAC 800 and requested cancellation without damages. The Board then obtained comparable IBM equipment at higher cost and sued to recover liquidated damages, excess cost, and certain wasted preparatory expenses.

Issue

Was Wegematic excused from liability for non-delivery and delay because basic engineering difficulties made completion of the promised computer system impracticable under federal law? More specifically, did the risk of those technological difficulties fall on the seller or the purchaser?

Rule

Under UCC § 2-615, delay or non-delivery is excused only if performance has been made impracticable by a contingency whose nonoccurrence was a basic assumption of the contract, except so far as the seller assumed a greater obligation. A seller who markets a product as a revolutionary breakthrough and agrees to delivery, liquidated damages for delay, and buyer cover rights assumes the risk that the promised technology will work unless the contract contains exculpatory language shifting that risk.

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Lakefront Analytics, a startup in Chicago, contracted to sell the Ohio Revenue Commission a new data server it advertised as a "breakthrough architecture" already incorporating the latest memory design. The contract required delivery in eight months, imposed $2,000 per day in liquidated damages for delay, and allowed the Commission to buy a substitute system elsewhere and charge Lakefront for any excess cost. Six months later, Lakefront discovered the memory design could not operate reliably without a major redesign costing far more than expected, and it refused to deliver.

If the Commission sues for delay damages and excess cover costs, which is the best argument against Lakefront's claim of excuse?

Explanation. Under the majority's approach, the key question is how much risk the seller assumed. A seller that markets a product as a revolutionary or breakthrough system and agrees to a delivery date, liquidated damages, and buyer cover rights ordinarily assumes the risk that the technology will function. Without exculpatory language shifting that development risk, commercial impracticability does not excuse non-delivery merely because the design proved harder and costlier than expected.