Eastern Airlines, Inc. v. McDonnell Douglass Corp.

Brief Fact Summary.

A contract between an airplane manufacturer and an airline for the purchase of airplanes was at issue.  During the height of the Vietnam War, the President, on various occasions, utilized his authority, with regard to defense related contracts, to approach manufacturers and "obtain precedence for certain [governmental] orders."  The airplane manufacturer was approached by the government to obtain precedence for certain orders, and consequently the airline was pushed to the back of the line and their airplane order was delayed.

Synopsis of Rule of Law.

There are various rules in this case, see the held section.

Facts.

The Plaintiff, Eastern Airlines, Inc. (the "Plaintiff"), entered into a contract with the Defendant, McDonnell Douglas (the "Defendant"), to purchase 100 airplanes.  A provision in the agreement excused the Defendant's delays if the delays were beyond their control.  As the provision makes clear, the delays contemplated included, but were not limited to acts of government.  The Excusable Delay clause stated "Seller shall not be responsible nor deemed to be in default on account of delays in performance . . . due to causes beyond Seller's control and not occasioned by its fault or negligence, including but not being limited to . . . any act of government, governmental priorities, allocation regulations or orders affecting materials, equipment, facilities or completed aircraft, . . . failure of vendors (due to causes similar to those within the scope of this clause) to perform their contracts . . . , provided such cause is beyond Seller's control." The United States Defense Department "jawboned" or informally demanded the Defendant into filling their orders for airplanes first.  They did so with a subtle threat that if they did not comply a formal directive would be issued under the Defense Production Act (the "D.P.A."), which consequently would give the government's orders priority.  Because the Defendant had to fill the government's orders first, the Plaintiff's orders were delayed. The trial court awarded the Plaintiff substantial damages and the Defendant appealed.

Issue.

Does the Defendant have a valid defense under §2-615 of the Uniform Commercial Code (the "UCC")? 
•    Was the District Court's instruction that the "defendant has the burden of proving that any excusing event or occurrence upon which it relies was not reasonably foreseeable at the time the contract was entered into" proper?
•    Do the government's informal demands, their "jawboning" constitute an "Act of Government" pursuant to the excusable delay clause?

Held.

Yes.  The court first discusses the applicability of §2-615 of the UCC.  Pursuant to §2-615 "the impossibility defense is available to the seller only if he has not 'assumed a greater obligation' than that imposed upon him by this provision."  The court faulted the district courts construction of the "Excusable Delay" clause and stated "[i]t is clear, then, that by excusing delays not within McDonnell's control nor due to its negligence, "including but not being limited to" governmental acts, priorities, or orders, the parties intended to excuse all delays coming within the general description regardless of their similarity to the listed excuses."  Consequently, they found that the §2-615 of the UCC applied to the parties' dispute because there was no indication that the excuses in the parties' contract were narrower than those imposed by the statute. 
•    No.  The court "disagree[d] with the trial judge's jury instruction on foreseeability insofar as it implies that the events specifically listed in the excusable delay clause in each contract must have been unforeseeable at the time the agreement was executed." Further, "when the promisor has anticipated a particular event by specifically providing for it in a contract, he should be relieved of liability for the occurrence of such event regardless of whether it was foreseeable."  Here, the Plaintiff specifically " 'contemplated and voluntarily assumed' the risk that deliveries would be delayed by governmental acts, priorities, regulations or orders."  As such, "there is no indication from the wording of the excusable delay clause that McDonnell's defenses are to be limited to breaches caused by unforeseeable events."
•    Yes.  The court first describes the D.P.A. as "a sweeping delegation of power" granting "the President broad authority to require that defense-related contracts be given precedence over less essential orders."  The court could not find anything in the D.PA. that said the government was forbidden from seeking compliance with the statutory provisions through informal demands.  Further, it recognized that "fundamentally coercive acts of Government, whatever their form, constitute an excuse for breach." The court then held "[g]iven McDonnell's unquestioned good faith in complying with the Government's demands for priority and the uncontroverted evidence of the entire aviation industry's acceptance of the policy as a matter of law that McDonnell is not liable for any delivery delay proximately resulting from the informal procurement program."

Discussion.

This case offers an interesting discussion into how courts construe §2-615 of the UCC.