AINSWORTH, Circuit Judge:
This important Florida diversity case involves an appeal from a judgment for damages for breach of contract in favor of Eastern Air Lines against McDonnell Douglas Aircraft, Inc. based on a jury verdict in Eastern's favor for the sum of $24,552,659.11 plus costs of $241,149.02—one of the largest jury verdicts ever reviewed by this Court. Involved is a series of contracts covering the years 1965-1968 by which
Our review of the case convinces us that the District Court made a diligent effort to resolve the many difficult matters before it. Nevertheless, we conclude that the trial judge committed substantial and prejudicial errors in a number of his rulings and instructions to the jury, which require reversal of the judgment and a new trial. Accordingly, we reverse and remand.
Eastern Air Lines decided in 1964 to replace what remained of its outmoded propeller-driven fleet in an effort to reverse a serious five-year financial decline. Ever since the advent of the commercial jet age in 1959, Eastern had lagged behind its competitors in the purchase of jet-powered planes. Consequently, the company's decision to order 100 new planes made it the last major trunk carrier to purchase a large number of jet aircraft.
Although Eastern is one of the largest passenger carriers in the world, its route system has historically been composed of relatively short segments. In 1964, only Boeing and Douglas could offer a small, twin-engine, short-range jet suited to Eastern's needs. Eastern's decision to purchase the Douglas DC-9 rather than Boeing's 737 was based in part on Douglas' offer to lease it a number of DC-9-14's as an interim plane until the larger "stretched" DC-9-31's were available.
Letters of intent providing for Eastern's lease or purchase of DC-9-14's and for its purchase of the "stretched" DC-9-31 and the DC-8 planes were signed in February of 1965. The following July, Douglas and Eastern entered into the first three of what was to be a series of eight contracts providing for the delivery of a total of 99 planes. Five of the eight contracts were amended, some a number of times, between 1965 and 1968.
Subsequently it appeared that the delays could not be confined to the DC-9-14 deliveries. During 1966 and 1967, Douglas repeatedly revised its scheduled delivery of DC-8's and DC-9-31's. These further delays were viewed with "great concern" by Eastern executives who informed Douglas that the late deliveries were imposing a "substantial burden" on the airline.
Throughout this period, Douglas was confronted with a mounting financial crisis which, to some extent, was the result of the DC-8 and DC-9 delivery delays. In the summer of 1966, Douglas forecast a loss of almost $30 million in its operations for the year. By November, Douglas' cash shortage reached such catastrophic proportions that the company's creditors insisted that a solvent merger partner be found. The natural choice was the McDonnell Aircraft Company whose military and space activities effectively complemented Douglas' strength in the commercial aircraft field. After McDonnell infused into Douglas over $68 million in new funds, a merger was consummated on April 28, 1967. The new McDonnell Douglas Corporation assumed all the obligations and liabilities of the former Douglas Aircraft Company.
Delivery delays continued after the merger until the last of the planes was delivered in January 1969. On the average, each of the 90 late planes was delivered 80 days after the month specified in the contract date. Several months after performance had been completed under the last of the eight contracts, Eastern wrote McDonnell on May 29, 1969 presenting a claim for damages resulting from the late deliveries over the previous three years. The airline alleged that these delays could not be deemed excusable under the applicable clause in the agreements. McDonnell rejected the claim and suit was filed in the District Court for the Southern District of Florida.
On the order of the District Judge, the trial was bifurcated with the liability phase to be tried first; to be followed, if necessary, by a trial on damages before the same jury. The greater part of the three-month liability trial was devoted to McDonnell's efforts to prove that the delivery delays were the product of events covered by the excusable delay clause in each contract. Although McDonnell produced evidence that some of the deliveries were late because of strikes and labor shortages, the heart of its defense was that most of the delays were caused by the rapid military buildup occasioned by the war in Vietnam. During the 1966-1968 escalation of the war, the Government asked the aviation industry to accord specific military projects priority over civilian production. Although military priority, in some cases, was gained through written directives and ratings issued pursuant to the Defense Production Act of 1950 ("D.P.A."), the Government often effectively achieved the same result by more informal and less direct means. McDonnell endeavored to show that, because its subcontractors cooperated with this "jawboning" policy of the Government, there were serious delays in the delivery of parts vital to DC-8 and DC-9 production. Throughout the course of this phase of the trial, however, the District Judge took the position that the only excusable delays were those resulting from written government orders issued in strict compliance with procurement regulations. As a result, the trial
McDonnell Douglas also contended that Eastern had failed to give timely and reasonable notice of the breaches, that one of the contracts was no longer enforceable, and that Eastern should be estopped from pursuing any of its claims. The District Court, however, ruled against McDonnell on all these issues.
At the close of the liability trial, the jury was instructed that McDonnell bore the burden of proving that the delays were caused by events which were excused under the contracts. Furthermore, according to the court's instructions, no event could be an excuse unless it was not reasonably foreseeable at the time the particular contract was entered into. On May 16, 1973, the jury's verdict, in the form of answers to special interrogatories, found that none of the 7,426 days of delay was excusable.
During the six-week damages phase of the trial, each side presented testimony concerning the effect of the delivery delays on Eastern's operations during the 1966-1968 period. Eastern's expert estimated the airline's lost profits to be $23,400,000 while McDonnell's expert witness was of the opinion that no such damages resulted from the delays. The airline also presented evidence to support its claims for damages resulting from surplus pilot time expense, wasted pilot training and wasted schedule expense. In addition to these claims, the District Judge permitted the jury to consider Eastern's contention that, under Florida law, it was entitled to prejudgment interest from the time of the breach. On July 12, 1973, the jury returned a special verdict awarding Eastern a total of $22,219,601 in compensatory damages and $9,650,715 in interest.
In its appeal, McDonnell Douglas' most fundamental contentions concern the District Court's rulings on excusable delay, Eastern's obligation to give reasonable and timely notice of breach, and the enforceability of one of the contracts.
Eastern appeals from the trial judge's determination that the award of prejudgment interest is controlled by California law, arguing that the jury's award of $7,753,215 in prejudgment interest should be reinstated.
II. Enforceability of Contract 65-41-L
A significant preliminary issue concerns the effect to be given Douglas' agreement to lease to Eastern 15 DC-9-14 aircraft until its larger DC-9-31 planes could be delivered.
Pursuant to the contract and the side agreement, Douglas sold each of the first five DC-9-14's manufactured to several equipment leasing corporations. As each of these jets was delivered between April and July of 1966, Eastern and Douglas executed an amendment to 65-41-L to reflect the fact that the plane was being financed by a
Simultaneously with the termination of Contract 65-41-L, Douglas executed a contract selling the ten planes to Bankers Trust, and Eastern executed a lease of those planes with the bank.
Under California law, the jurisdiction whose rules control the construction of all the contracts involved in this case,
There is no support in the unambiguous, if somewhat awkwardly phrased, language of the "Agreement to Terminate" for the proposition that the original delivery dates were to continue in effect after July 14, 1966. Eastern and Douglas quite explicitly "terminated all . . . obligations . . . and liabilities . . . except for any . . . which may have accrued . . . prior to [July 14, 1966]."
Eastern contends, however, that its claims under Contract 65-41-L for the last seven DC-9-14's to be delivered are preserved because Douglas' obligation to deliver in a timely fashion "accrued" when the contract was first executed. If we were to adopt Eastern's view that the accrual of an
Because the termination agreement cannot reasonably be interpreted as preserving the original delivery dates for those planes manufactured after July 14, 1966, the trial judge erred in using the Contract 65-41-L schedule to measure delays in the delivery of the seven DC-9-14's which were not overdue at that time.
Having determined that the termination agreement forecloses any action under Contract 65-41-L for delays which occurred after July 14, 1966, we turn to McDonnell's contention that those claims which were preserved by this agreement are barred by the statute of limitations. The limitation period to be applied in this diversity case is that which would be applied by the Florida courts. Wells v. Simonds Abrasive Co., 345 U.S. 514, 73 S.Ct. 856, 97 L.Ed. 1211 (1953); 2 J. Moore, Federal Practice ¶ 3.07 at 744-746 (1975). As the trial judge correctly held, Florida's borrowing statute refers us to the applicable statute of limitations imposed by California, the state in which this action arose.
The District Court held that since Contract 65-41-L was not divisible, the four-year
There can be no doubt that Eastern's cause of action under the contract accrued, at the latest, on July 14, 1966 when, for all intents and purposes, performance under Contract 65-41-L ceased. Since this suit was filed more than four years later on July 31, 1970, Eastern's claims arising from the late delivery of the first eight DC-9-14's scheduled to be manufactured under Contract 65-41-L should have been barred by the District Court.
In conclusion, then, the termination agreement and the statute of limitations together preclude Eastern from bringing suit under Contract 65-41-L for delays in the delivery of DC-9-14 aircraft.
III. Notice of Breach Under the Uniform Commercial Code
During the trial and in final instructions to the jury, the District Court held that Eastern need not prove, as a predicate for recovery in this suit, that it had given McDonnell Douglas reasonable and timely notice of the delivery delays. McDonnell strongly contests the trial judge's rulings for Eastern on this issue and argues either that the airline should, as a matter of law, be barred from any recovery or, alternatively, that the issue of timely notice should have been submitted to the jury.
The statute governing this question is section 2-607(3)(a) of the Uniform Commercial Code
McDonnell contends that the trial judge denied it the benefits of this provision, both by ruling that section 2-607 does not apply to late deliveries and by holding in the alternative that Eastern gave adequate notice. Because we are unable to agree with the District Court's ruling on either ground, we hold that the question of timely notice under section 2-607 should have been submitted to the jury.
A. Applicability of U.C.C. § 2-607(3)(a)
Even though section 2-607, by its very terms, governs "any breach," the trial court found the notice requirement to be inapplicable to delivery delays because a seller necessarily has knowledge of this sort of contract violation. Relying on the case of Jay V. Zimmerman Company v. General Mills, Inc., E.D.Mo., 1971, 327 F.Supp. 1198, 1204, the District Judge concluded that notice
Section 2-607's origins, however, reveal that it has a much broader function. The Code's notice requirement was derived from decisional law in California
As Professor Williston, the author of the Sales Act, has noted, section 49 continued the common law rule treating a seller's tender of goods as an offer of them in full satisfaction. 3 S. Williston, Contracts § 714 (rev. ed. 1961). The buyer, though, was permitted to accept the offer without waiving any claims if he gave the seller prompt notice to this effect. See Reininger v. Eldon Mfg. Co., supra, 250 P.2d at 7. This approach reconciled the desire to give finality to transactions in which goods were accepted with the need to accommodate a buyer who, for business reasons, had to accept the tendered goods despite unsatisfactory performance by the seller. Metro Invest. Corp. v. Portland Rd. Lumber Yard, Inc., 1972, 263 Or. 76, 501 P.2d 312, 314. Pre-U.C.C. decisions in California and elsewhere, therefore, recognized that the primary purpose of notice is to inform the seller that, even though his tender has been accepted by the buyer, his performance is nonetheless considered a breach of contract. E. g., Columbia Axle Co. v. American Automobile
Under section 49 it was irrelevant whether a seller had actual knowledge of a nonconforming tender. Instead, the critical question was whether the seller had been informed that the buyer considered him to be in breach. Consequently, in Professor Williston's words, "the section is applicable not only to defects in quality but to breach of any promise or warranty, as, for instance, delay in time."
American Mfg. Co. v. United States Shipping Board E. F. Corp., 2 Cir., 1925, 7 F.2d 565, 566; cited with approval Whitfield v. Jessup, supra, 31 Cal.2d at 830, 193 P.2d at 4; Reininger v. Eldon Mfg. Co., supra, 250 P.2d at 8. But see Johnson v. Comptoir Franco Belge D'Exportation, etc., 1955, 135 Cal.App.2d 683, 288 P.2d 151, 156.
As the drafters of Article 2 acknowledge, section 2-607 continues the basic policies underlying section 49 of the Uniform Sales Act.
Given these undeniable purposes, it is not enough under section 2-607 that a seller has knowledge of the facts constituting a non-conforming tender; he must also be informed that the buyer considers him to be in breach of the contract. The Code's notice requirement, then, is applicable to delivery delays as well as other breaches.
B. Adequate Notice Under Section 2-607(3)(a)
Turning next to the lower court's alternative rationale for ruling against McDonnell on the issue, we must determine whether the notice given by Eastern was both sufficient and timely as a matter of law. Finding the facts "essentially uncontradicted," the trial court concluded that Eastern adequately informed McDonnell that it considered the delivery delays to be an actionable breach:
Because the court's ruling was, in effect, a directed verdict, it can be sustained only if there is no conflict in substantial evidence and the inferences from these facts "point so strongly and overwhelmingly" in favor of Eastern that reasonable men could not have arrived at a contrary verdict. Boeing Company v. Shipman, 5 Cir., 1969, 411 F.2d 365, 374-75 (en banc). As will be demonstrated below, the adequacy and timeliness of notice under section 2-607 typically depend upon the reasonableness of the buyer's efforts to communicate his dissatisfaction. See United States v. Crawford, 5 Cir., 1971, 443 F.2d 611, 614. Therefore, whether the notice requirement has been complied with is a question which is particularly within the province of the jury. See Pritchard v. Liggett & Myers Tobacco Company, 3 Cir., 1961, 295 F.2d 292, 298; L. A. Green Seed Company of Arkansas v. Williams, Ark., 1969, 438 S.W.2d 717; 2 R. Anderson, Uniform Commercial Code § 2-607:24 (1971). As was noted by the Third Circuit:
Pritchard v. Liggett & Myers Tobacco Company, supra (applying Uniform Sales Act); see Columbia Axle Co. v. American Automobile Ins. Co., 6 Cir., 1933, 63 F.2d 206, 208.
Applying this standard of review to the facts, we find that there was at least
As we have seen, the contractual relationship between Douglas and Eastern stretched over a number of years and was governed by a series of separate agreements, several of which were amended a number of times.
By early January of 1966, both parties were aware that production under Contract 65-41-L, the agreement with the earliest delivery dates, was behind schedule. Douglas did not officially notify Eastern of the impending delays until February when it sent several letters ascribing the DC-9-14 production difficulties to delays by subcontractors and a shortage of skilled labor. In Douglas' view, all of these problems were due to "our nation's rapidly increasing commitments in Southeast Asia." Douglas also indicated that it was making every effort to mitigate the impact of its subcontractors' difficulties.
Eastern replied on March 15, stating that it was "most disappointed with the delivery status" of the DC-9-14's. The airline noted that it had repeatedly expressed concern over the lack of early notification by Douglas. Without contesting Douglas' assertions concerning the Vietnam War, Eastern stated that
On May 4, Douglas wrote Eastern expressing its willingness to discuss ways of "minimizing the difficulties these delays are causing you." Douglas, however, asked the airline to defer such conversations until production was back on schedule. There was no further correspondence concerning Contract 65-41-L, and, as we have seen, the agreement itself was terminated on July 14, 1966.
By fall of 1966, however, it became apparent that there also would be delays in the delivery of the DC-9-31 and DC-8-61 planes. Between October 1966 and September of 1967, Douglas wrote Eastern at least four times informing the airline of further delays in the production of these two types of aircraft. In a September 28, 1967 letter, written after the April merger, McDonnell Douglas again attributed the delays to "the worker shortage and continuing material and equipment shortages."
Eastern's first formal response to this series of announcements came on October 6, 1967. This letter informed McDonnell that "the delays in aircraft delivery have been very expensive to Eastern Airlines and we must view continuing slippage with great concern." Eastern went on to state that
On November 7, 1968, Eastern's Chief Financial Officer, Mr. Simons, wrote McDonnell Douglas asking that every effort be made to deliver several planes on schedule because a delay during the peak holiday season would place "a substantial burden on Eastern which is more severe than that imposed on your other customers."
There were no further significant written communications from Eastern until May 29, 1969 when McDonnell was formally presented with a claim for damages, in a letter from Eastern reading, in part, as follows:
In addition to this undisputed documentary evidence, the District Court had before it testimony concerning Eastern's attitude toward the delivery delays. Eastern's Chairman, Floyd Hall, testified that he "talked with almost every one of the top officials [of Douglas and then of McDonnell Douglas] at one time or another. . . . [E]very time I met them I reminded them of the late delivery of their aircraft." W. Glenn Harlan, Eastern's Senior Vice President of Legal Affairs, also testified that he refused Douglas' request to waive the airline's claims concerning the late deliveries.
The record, however, also contains testimony that Eastern informed McDonnell executives that it did not intend to make a claim for the late deliveries. James S. McDonnell, Chairman of McDonnell Douglas, testified that, as late as October 1968, Eastern's President, Arthur Lewis, assured him that no damages would be sought. Another McDonnell executive, Jackson R. McGowan, also testified that Eastern's Chairman, Floyd Hall, told him that no legal action was contemplated.
Eastern contends that these facts are more than sufficient to constitute adequate notice as a matter of law. The Code, in Eastern's view, does not require the buyer to inform the seller that he is presenting a claim under the contract. This contention is based on Comment No. 4 to section 2-607 which states, in part, that "[t]he content of the notification need merely be sufficient to let the seller know that the transaction is still troublesome and must be watched." Eighth Circuit decisions
It appears that Comment No. 4 was aimed at remedying a rule adopted under section 49 of the Uniform Sales Act by some courts that a mere complaint of a breach was not adequate notice.
These technical requirements were dispensed with because they frequently served to deny an uninformed consumer of what was otherwise a valid claim.
However, the fact that the Code has eliminated the technical rigors of the notice requirement under the Uniform Sales Act does not require the conclusion that any expression of discontent by a buyer always satisfies section 2-607. As Comment 4 indicates, a buyer's conduct under section 2-607 must satisfy the Code's standard of commercial good faith. Thus, while the buyer must inform the seller that the transaction is "still troublesome," Comment 4 also requires that the notification "be such as informs the seller that the transaction is claimed to involve a breach, and thus opens the way for normal settlement through negotiation."
We note, moreover, that the trial judge's rationale for ruling against McDonnell on the notice issue appears to have been based on a single letter written by Douglas in response to Eastern's March 15, 1966 request for aid in reducing its "pre-inauguration activities." In his post-trial memorandum, the District Judge appeared to infer a waiver of Douglas' right to notification concerning any future breaches from its request that this aid be postponed. In our view, though, the March 15 letter from Eastern does not constitute adequate notice as a matter of law. Indeed, a close reading of the communication reveals that Eastern's primary concern was the lack of early notification of impending delivery delays rather than the validity of Douglas' contention that these delays were the product of the Vietnam War. Although Eastern expressed the view that some of the delays should have been avoided, it requested merely that Douglas help to mitigate the delays' impact upon Eastern's operations. A jury, therefore, might reasonably infer from this correspondence that Eastern was not claiming a breach of the particular contract involved.
More importantly, the District Court's reliance on these two particular letters evidences a failure to recognize that the buyer's good faith is the governing criterion under section 2-607. As we have seen, the Code's draftsmen disposed of rigid technical requirements which would frustrate the notice requirement's design of defeating
It is particularly important in continuing contractual relationships—such as the one which bound Eastern and McDonnell Douglas together for almost four years—that all of a buyer's dealings with a seller be evaluated under the good faith standard. An overly mechanical application of the notice requirement to complex or ongoing agreements would frequently frustrate the section 2-607 design of defeating commercial bad faith.
Reviewing Eastern's entire course of conduct during the years 1965-1969, and recognizing that Eastern must be held to a higher standard of good faith than an ordinary consumer, we conclude that a jury could reasonably find, as one of its options, that adequate notice was not given. In analyzing the record before us, we are guided by the Boeing Company v. Shipman, supra, requirement that we give McDonnell the benefit of every reasonable inference.
We note first that even Eastern's most strongly worded communications can reasonably be construed as an effort to prod McDonnell Douglas into minimizing the Vietnam War's impact upon production rather than as a claim for breach. As we have seen, Eastern's March 15, 1966 letter to Douglas—perhaps its single most forceful expression of dissatisfaction—can be viewed as a request for aid in minimizing the impact of the delays rather than an assertion that Douglas had violated the contract.
Eastern, moreover, did not dispute McDonnell Douglas' contention that the delays were caused by the Vietnam War until the airline presented its formal claim for damages in 1969. Indeed, throughout the life of all the contracts, Eastern was advising its shareholders,
We disagree with Eastern's contention that it "had no choice but to accept what Douglas was saying as the truth." Eastern was in constant communication with its own engineer who was in residence at the
Eastern's commercial good faith is subject to further challenge because it continued to negotiate new contracts and amend old ones throughout the period in which the delays occurred. Two of the agreements, in fact, were executed in October of 1967 after 44 of the planes were already late. At no time during the negotiation and execution of any of these contracts did Eastern seek a settlement of its claims or even dispute McDonnell's Vietnam excuse. This may very well have led McDonnell to believe that, even though Eastern was unhappy about the delays, it did not consider them to be a breach of the contract.
In addition to supporting the inference that adequate notice was not given, the record reveals a conflict in the evidence which, under Boeing Company v. Shipman, supra, is sufficiently substantial to preclude a directed verdict for Eastern. As we have seen, both Mr. McDonnell and Mr. McGowan testified that Eastern's management had assured them that no damages would be sought because of the delivery delays. Eastern's witnesses disputed this contention. If such assurances were in fact given, Eastern's conduct may well have violated the requirements of commercial good faith. This conflict alone, then, is sufficient to render the question of notice an issue for the jury.
The evidence reflected in the record, however, is also insufficient to support a directed verdict in favor of McDonnell Douglas on the issue of notice. There was no evidence at trial concerning the "reasonable standards of fair dealing" in the commercial aviation industry. We, therefore, cannot determine whether Eastern's conduct failed to satisfy contemporary standards of commercial good faith. Additionally, the conflict in evidence described above, the testimony that Eastern in several instances refused to waive its legal rights,
IV. The Vietnam War as an Excuse for Delayed Deliveries
Much of the trial below was devoted to McDonnell's defense that the delivery delays were the result of the escalation of the war in Vietnam and were therefore excusable under the contracts, the Defense Production Act, and the Uniform Commercial Code. To prove this contention, McDonnell introduced evidence of government pressure on its suppliers and subcontractors to accord military orders priority over civilian projects. McDonnell asserts that its efforts to raise the defense of government "jawboning" was frustrated by the trial judge's ruling and subsequent instructions to the jury which held that the only excusable delays were those resulting from formal ratings and directives issued in strict compliance with the Defense Production Act. Issue is also taken by McDonnell with the lower court's rulings that it had the burden of proof in establishing its defenses, that the U.C.C. is not applicable to this question and that any excusing event must have been unforeseeable.
Because we find that the Government's "jawboning" policy in effect during the years 1966-1969 comes within the terms of the contracts' excusable delay clause and the exculpatory provision of the Defense Production Act, we hold that the District Judge committed reversible error on this issue. The jury should have been instructed that McDonnell was not liable for any delays proximately caused by this government policy. The trial judge also erred in instructing the jury both that these particular delays had to have been unforeseeable and that the Code's impracticability defense was not available to McDonnell.
A. The Government's "Jawboning" Policy
Although the origins of American involvement in Vietnam can be traced back to World War II, direct military intervention did not begin on a significant scale until after the overthrow of the Diem Regime in November of 1963. During the ensuing year, the United States increased the number of its troops stationed in that country from 1,000 to 20,300. This American commitment, however, constituted a relatively insignificant part of our total military budget and had no substantial effect on the national economy.
Thus, in February 1965, when Eastern and Douglas signed the letter of intent concerning all the agreements ultimately executed between them, the Vietnam conflict was having no significant effect on the American economy. There was, moreover, little indication at that time of the proportions which the war was quickly to assume.
This, of course, led to conflicts between already scheduled commercial production and sudden, unexpectedly-large military needs. Rather than abandoning entirely the "guns and butter" policy upon which the war had been predicated, the Government sought instead to have military suppliers accord first priority to war production.
The vehicle by which military orders gained precedence over civilian production was the Defense Production Act of 1950 ("D.P.A."). 50 App.U.S.C. § 2061 et seq.
As provided under the D.P.A.,
Pursuant to these delegations, the B.D.S.A. adopted rules and regulations governing the precedence to be given certain civilian and military orders.
Because of its importance both to the economy and to national defense, production for civil air carriers, ever since the Korean War, had been accorded the same general "DO" priority rating given military aircraft. By having equal preferential status with military production, the manufacturers of commercial planes were guaranteed prior access to the hardware and vital raw materials also being sought by less essential industries.
Occasionally, "DO"-rated civilian orders would delay military requirements with the same priority rating. Prior to 1966, these conflicts were usually resolved by a Defense Department application to the B.D.S.A. for a "bottleneck-breaking DX rating." After a number of weeks, the B.D.S.A. would issue the requested rating if it determined that civilian orders were in fact delaying military production.
By the end of 1965, however, the enormous increase in urgent military orders had made this process so unwieldy that the Defense Department sought to have the "DO"
In the face of this widespread opposition, the military withdrew its request that the "DO" rating be removed from commercial aircraft production. As a quid pro quo, however, the Defense Department insisted that particular military orders be given preference on an individual and informal basis. It appears that the aviation industry agreed to the proposed arrangement.
That same day a copy of this letter was forwarded to the Secretary of Commerce, John T. Conner, with a request that he instruct the B.D.S.A. "to take all necessary actions to insure the prompt delivery of military aircraft." The Secretary of Commerce replied on July 27, 1966, stating that
Mr. Bryant's letters to Ignatius and Conner were disseminated among the manufacturers and suppliers in the aviation industry, and the policy outlined in them became public knowledge.
That "jawboning" of aircraft manufacturers continued to be the policy of the Executive Branch throughout the period at issue in this case is evident in an August 1, 1969 letter from the Acting Secretary of Commerce, Rocco C. Siciliano, to General G. A. Lincoln, Director of the Office of Emergency Preparedness, which was the successor to the Office of Emergency Planning. In reply to Lincoln's inquiry concerning the aviation industry's request for an extension of its "DO" priority rating, Siciliano noted that his Department had no objection and stated:
As explained by William J. Zepp, the Commerce Department official in charge of the B.D.S.A., the policy approved by Mr. Bryant was that when "DO"-rated orders conflicted, the military came first."
Similar pressures were being applied to the manufacturers of Douglas' landing gear. Gerald Lynch, President and Chairman of Menasco, Inc., testified that the underlying reason for his firm's delay in delivering landing gear to Douglas was "the extraordinary unanticipated requirements for . . . military spares." When questioned by Eastern's counsel concerning why Menasco gave the military priority over Douglas, Lynch replied that
Cleveland Pneumatic Tool Company, the other supplier of landing gear to Douglas also gave military orders priority despite the "DO" rating given its civilian contracts. In response to McDonnell Douglas complaints concerning the delays, the firm sent a telegram on February 2, 1968 stating:
Taking the view that the jawboning policy described above was voluntarily acquiesced in by the aviation industry, the District Court ruled and subsequently instructed the jury during the liability phase of the trial that only delays resulting from the actual issuance of formal ratings or directives could be deemed excusable.
In an effort to blunt McDonnell's attack on the trial judge's rulings and instructions, Eastern devoted a great deal of its briefs and oral argument to a recitation of purported management difficulties at Douglas during the years 1965-1966. Eastern implied that even if the District Court erred in its approach to the Government's jawboning policy, there are no grounds for reversal because the delivery delays were in fact the product of Douglas mismanagement rather than the Vietnam conflict.
Under the Boeing Company v. Shipman standard, however, there is ample evidence in the record to make this issue one for the jury. Not only does it appear that there was a substantial war-caused labor shortage in Douglas' recruiting area,
B. The "Excusable Delay" Clause
McDonnell Douglas contends that the trial judge's instructions to the jury undercut the defense available to it under the excusable delay clause found in all of the contracts at issue in this appeal. In relevant part, the provision reads as follows:
1. Ejusdem Generis and the Applicability of U.C.C. § 2-615
McDonnell's first contention in this regard is that the District Court unduly narrowed the scope of this clause by instructing the jury that an excusable delay must be the result of "one or more of the listed events in the excusable delay clause of the contracts, or . . . a similar cause beyond the defendant's control. . . ." This instruction, in McDonnell's view, effectively construes the specifically listed excusable causes of delay as restricting the application of the more general phrase which exempts Douglas from liability for delays beyond its control and not due to its negligence. McDonnell feels, therefore, that its affirmative defense was unjustifiably limited to delays caused by events similar to those specifically listed when, in fact, the contracts excused all delays which were not its fault.
The trial judge's construction of the clause, moreover, affords McDonnell Douglas a narrower range of excuses than is available under the modern view of impossibility as it is codified in U.C.C. § 2-615.
Under section 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. During the trial, the court below ruled that section 2-615 was not applicable for this reason. Although the trial judge failed to explain his holding, it must have been based upon his restrictive construction of the excusable delay clause. Presumably, then, the protections of section 2-615 were deemed to have been waived because the contracts were interpreted as limiting McDonnell's impossibility defense to delays caused by events similar to those specifically provided for in the excusable delay clause.
In support of this approach, Eastern argues that the District Court correctly applied ejusdem generis, a canon of judicial construction limiting the application of general terms which follow specific ones to matters similar in kind or classification
2. The Foreseeability Issue
McDonnell also challenges the trial judge's jury instruction which limited excusable delivery delays to those resulting from events which were not "reasonably foreseeable" at the time a contract was
Although there has been some doubt expressed as to whether the Code permits parties to bargain for exemptions broader than those available under section 2-615, this concern is ill-founded. See Hawkland, The Energy Crisis and Section 2-615 of the Uniform Commercial Code, 79 Com.L.J. 75 (1974). Comment 8 to this provision plainly indicates that parties may "enlarge upon or supplant" section 2-615. See United States v. Wegematic Corp., 2 Cir., 1966, 360 F.2d 674, 677 (Friendly, J.).
There appear to be, however, certain strictures imposed upon judicial interpretation of such agreements. Comment 8 provides:
While this provision could have been drafted in less vague terms, we presume that Comment 8 establishes "mercantile sense and reason" as a general standard governing our construction of agreements enlarging upon the protections of section 2-615.
We realize, of course, that this rule of construction developed in the pre-U.C.C. era when the scope of the impossibility and frustration doctrines was unclear and varied from jurisdiction to jurisdiction. Because of the uncertainty surrounding the law of excuse, parties had good reason to resort to general contract provisions relieving the promisor of liability for breaches caused by events "beyond his control." Although the Uniform Commercial Code has ostensibly eliminated the need for such clauses, lawyers, either through an abundance of caution or by force of habit, continue to write them into contract. See generally Squillante & Congalton, Force Majeure, 80 Com.L.J. 4, 8-9 (1975). Thus, even though our interpretation would render the general terms of the excusable delay clause merely duplicative of section 2-615, we will adhere to the established rule of construction because it continues to reflect prevailing commercial practices.
We reiterate, however, that we are applying only a canon of contract interpretation which generally reflects commercial standards of reasonableness. We disagree with the suggestion of one commentator that section 2-615 imposes a fixed standard governing the interpretation of exemption clauses.
While we hold that the provision of the excusable delay clause exempting McDonnell from liability for delays beyond its control should be interpreted as incorporating the Code's commercial impracticability doctrine, we disagree 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. The rationale for the doctrine of impracticability is that the circumstance causing the breach has made performance so vitally different from what was anticipated that the contract cannot reasonably be thought to govern. 6 S. Williston, Contracts § 1963 at 5511 (rev. ed. 1938). However, because the purpose of a contract is to
Therefore, 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.
Glenn R. Sewell Sheet Metal, Inc. v. Loverde, 1969, 70 Cal.2d 666, 451 P.2d 721, 728 n. 13; see Lloyd v. Murphy, supra, 153 P.2d at 50. In this case, it is clear that Eastern specifically "contemplated and voluntarily assumed" the risk that deliveries would be delayed by governmental acts, priorities, regulations or orders. Moreover, unlike the only case cited to us by Eastern which construes a similar provision, United States v. Brooks-Callaway Co., 318 U.S. 120, 63 S.Ct. 474, 87 L.Ed. 653 (1943), 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. Therefore, we must conclude that the trial judge erred in instructing the jury that the events specifically listed in the excusable delay clause must have been unforeseeable at the time the contracts were entered into for McDonnell to claim exemption from liability.
3. Informal Demands for Priority as an "Act of Government"
Turning next to the question of whether the Government's informal priorities policy came within the ambit of the excusable delay clause, we have seen in Part IV-A of this opinion that McDonnell and its suppliers, in granting priority to the military, were cooperating with the established, publicly announced procurement policy of the Federal Government. Eastern contends, however, that this informal program did not come within the scope of the contract clause specifically excusing "any act of government, governmental priorities, allocations, or orders affecting materials." Asserting that the Defense Production Act authorizes the Government to obtain precedence for certain orders only by means of formal, published regulations, Eastern concludes that any other method is illegal, if not unconstitutional, and therefore cannot be deemed an act of Government. We disagree for the following reasons.
This conclusion is reinforced by the fact that the Defense Production Act of 1950 was enacted in the face of established legal authority which had consistently construed previous procurement statutes as authorizing informal and indirect methods of securing compliance with the Government's military priorities policy. E. g., L. N. Jackson & Co. v. Royal Norwegian Government, 2 Cir., 1949, 177 F.2d 694, cert. denied, 339 U.S. 914, 70 S.Ct. 574, 94 L.Ed. 1340 (1950); Roxford Knitting Co. v. Moore & Tierney, Inc., 2 Cir., 265 F. 177, cert. denied, 253 U.S. 498, 40 S.Ct. 588, 64 L.Ed. 1032 (1920); Dorsey v. Oregon Motor Stages, 1948, 183 Or. 494, 194 P.2d 967; Tidewater Portland Cement Co. v. Lincoln, 1923, 142 Md. 193, 120 A. 365; Nitro Powder Co. v. Agency of Canadian Car & Foundry Co., 1922, 233 N.Y. 294, 135 N.E. 507; Mawhinney v. Millbrook Woolen Mills, Inc., 1921, 231 N.Y. 290, 132 N.E. 93; Tipler-Grossman Lumber Co. v. Forrest City Box Co., 1921, 148 Ark. 132, 229 S.W. 17, 19-20; Pedrick & Springfield, War Measures and Contract Liability, 20 Texas L.Rev. 710, 719 (1942); Dodd, Impossibility of Performance of Contracts Due to War-Time Regulations, 32 Harv.L.Rev. 789, 796-805 (1919); cf. Texas Co. v. Hogarth Shipping Corp., 256 U.S. 619, 41 S.Ct. 612, 65 L.Ed. 1123 (1921). It was recognized that, for reasons of practical necessity, urgently needed government orders had to be obtained "by non-mandatory directions based ultimately on the powers of compulsion rather than by the actual exercise of the statutory compulsive powers." Dodd, Impossibility of Performance of Contracts Due to War-Time Regulations, 32 Harv.L.Rev. 789, 798 (1919). The military's need for speed and flexibility in directing the flow of necessary materials precluded a ponderous bureaucratic procurement process. Thus, even though the World War I National Defense Act, 39 Stat. 213 (June 3, 1916), specifically provided that either the President or a department head placed priorities orders, several decisions held that literal compliance with this requirement was not necessary. Roxford Knitting Co. v. Moore & Tierney, Inc., supra; Mawhinney v. Millbrook Woolen Mills, Inc., supra.
In both Roxford Knitting and Mawhinney, it was asserted that because the
265 F. at 191; accord Mawhinney v. Millbrook Woolen Mills, Inc., supra, 231 N.Y. at 300, 132 N.E. at 96.
During World War II, a similarly liberal view was taken of the Government's procurement authority. See Dorsey v. Oregon Motor Stages, 1948, 183 Or. 494, 194 P.2d 967; Pedrick & Springfield, War Measures and Contract Liability, 20 Texas L.Rev. 710, 719 (1942); Brown, The Effect of Conscription of Industry on Contracts for the Sale of Goods, 90 U.Pa.L.Rev. 533, 546 & n. 82 (1942); cf. Alexewicz v. General Aniline & Film Corp., Sup.Ct.1943, 181 Misc. 181, 43 N.Y.S.2d 713, 723-25. Inasmuch as the D.P.A., in significant respects, contains the language of the World War II statute,
There can be little question, then, that the Defense Production Act granted the Government authority to seek compliance with its priorities programs by informal means of persuasion whether written or oral.
We note, moreover, that this case precisely fits an established pattern of decisions rejecting the contention that breaches of contract are excused only by formal or technical acts of Government. Whether predicated on a contractual provision or simply on the common law defense of impossibility these decisions indicate in the clearest terms that fundamentally coercive acts of Government, whatever their form, constitute an excuse for breach. Thus, a promisor is not liable merely because the government order causing a breach is technically deficient. Texas Co. v. Hogarth Shipping Corp., 256 U.S. 619, 41 S.Ct. 612, 65 L.Ed. 1123 (1921). Neither is he required to resist a government requisition in order to be excused from performance. The Claveresk, 2 Cir., 1920, 264 F. 276. As the Claveresk court observed, "it would be `a strange law' which required . . . [a promisor] to resist, `till the hand of power was laid upon him, an order which it was his duty to obey'." 264 F. at 280-81. The Supreme Court, moreover, has excused breaches caused by a promisor's anticipation of government action. The Kronprinzessin Cecilie, 244 U.S. 12, 37 S.Ct. 490, 61 L.Ed. 960 (1917). Writing for the Court, Mr. Justice Holmes found the impossibility doctrine applicable to a ship which returned to port
244 U.S. at 24, 37 S.Ct. at 492, 61 L.Ed. at 966. Thus, the "apprehension of restraint, something much less than actual government compulsion, may suffice to dissolve the obligation of a contract." The Claveresk, supra, 264 F. at 282.
In a similar manner, decisions arising under previous versions of the Defense Production Act have focused upon "the reality of coercion" rather than the form which it may have taken. L. N. Jackson & Co. v. Royal Norwegian Government, supra, 177 F.2d at 699; see Roxford Knitting Co. v. Moore & Tierney, Inc., supra, 265 F. at 191; Dorsey v. Oregon Motor Stages, supra, 194 P.2d at 983; Nitro Powder Co. v. Agency of Canadian Car & Foundry Co., supra, 135 N.E. at 508. Courts have held, therefore, that, where compulsion is actually present, a vendor is justified in complying with a government request for priority, no matter how informally presented or politely phrased that demand may have been. See, e. g., Roxford Knitting Co. v. Moore & Tierney, Inc., N.D.N.Y., 1918, 250 F. 278, 286, aff'd, 2 Cir., 265 F. 177, cert. denied, 253 U.S. 498, 40 S.Ct. 588, 64 L.Ed. 1032; Mawhinney v. Millbrook Woolen Mills, supra, 132 N.E. at 96; 6 A. Corbin, Contracts § 1345 at 425 n. 23 (1962). As one commentator has noted, a court would be
Dodd, Impossibility of Performance of Contracts Due to War-Time Regulations, 32 Harv.L.Rev. 789, 799 (1919).
Eastern contends, however, that these authorities are not applicable here because the B.D.S.A.'s published regulations guaranteed "DO"-rated civilian orders "equal preferential status" with similarly rated military contracts. Regulation 2 § 3(b)(2), 18 Fed.Reg. 1684 (1953). It is Eastern's view that because the Government was violating its own regulations, McDonnell could have successfully resisted its demands.
Consequently, we will not permit the form of the military priorities policy to disguise what was in substance a governmental act beyond the control of McDonnell Douglas. The excusable delay clause cannot be made to turn on a distinction which for so long has been held to be entirely artificial and unrealistic. As Mr. Justice Holmes stated in a very similar context, "[b]usiness contracts must be construed with business sense, as they naturally would be understood by intelligent men of affairs." The Kronprinzessin Cecilie, supra, 244 U.S. at 24, 37 S.Ct. at 492, 61 L.Ed. at 966.
This approach, moreover, is consistent with that required under the Uniform Commercial Code. In Comment 10 to section 615, the draftsmen of Article 2 stated:
Given 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, we must hold as a matter of law that McDonnell is not liable for any delivery delay proximately resulting from the informal procurement program.
C. Exoneration under the Defense Production Act
Even if the contract clause did not apply to informal government pressures, McDonnell asserts that delays resulting from this policy were nevertheless excused under the Defense Production Act. Section 707 of the D.P.A., in relevant part, provides that
50 App.U.S.C. § 2157 (emphasis added). Eastern argues for a narrow construction of this provision, asserting that the Government's requests in this case could not be considered "order[s] issued pursuant to" the D.P.A. It is Eastern's position that the exculpatory provision extends only to government requisitions which are issued in strict accordance with published regulations and which "contain the threat of some sanction for failure to obey." In other words, Eastern contends that, despite the Act's exoneration of persons complying with illegal orders, Congress nevertheless intended to narrow the common law impossibility defense to only those breaches resulting from formally issued and technically worded requisitions. Thus, while one supplier would be exempt because of his compliance with a technically sufficient but substantively invalid order, another would be held liable for acceding to a government demand which was ultimately within the Government's power to enforce but which was deficient in some formal sense. There is nothing in the Defense Production Act or its history which requires this unreasonable result.
This Court has already expressed the view that aside from section 707's exoneration of breaches resulting from compliance with priority orders subsequently held to be invalid, the provision "is simply declaratory of the common law [doctrine of impossibility]." United States v. Texas Construction Company, 5 Cir., 1955, 224 F.2d 289, 293. As we have seen above, the Government's procurement policy clearly gives rise to a defense under this doctrine.
Other courts, moreover, have repeatedly held that the term "order" as it has been used in previous procurement statutes includes informally presented requests for priority. See, e. g., Roxford Knitting Co. v. Moore & Tierney, supra; Mawhinney v. Millbrook Woolen Mills, supra. In the absence of any definition of the term in the D.P.A., there is no reason why the construction given "order" under the World War I priority acts should not be applicable to this case:
Roxford Knitting v. Moore & Tierney, supra, 265 F. at 188. The similarly worded exoneration provision found in the World War II procurement acts
To the contrary, the legislative hearings on the D.P.A. evidenced a strong congressional preference for nonmandatory civilian cooperation with the Government's procurement policies. See Hearings before Committee on Banking and Currency on S. 3936, 81st Cong., 2d Sess. 82, 87, 93, 95 (1950); Note, The Defense Production Act: Choice as to Allocations, 51 Colum.L.Rev. 350, 358 (1951). The Secretary of Commerce, moreover, testified during the D.P.A. hearings that voluntary methods would be used before the Government actually invoked its priorities powers and that the threat of mandatory powers would be used as a "big stick" to induce voluntary cooperation. Hearings before Committee on Banking and Currency on S. 3936, 81st Cong., 2d Sess. 82-95 (1950); see Hearings before Committee on Banking and Currency on H.R. 9176, 81st Cong., 2d Sess. 106 (1950).
We have already indicated that a cumbersome and inflexible administrative process is antithetical to the pressing necessities of military procurement. This, however, would be the inevitable result of a narrow construction of section 707. As the Congress recognized, a flexible and efficient program is best achieved through prompt and willing civilian cooperation with government requests for priority. See Note, Impossibility of Performance Due to War-Time Governmental Interference, 28 Va.L.Rev. 72, 78-79 (1941). If the D.P.A.'s exoneration provision were given a narrow and technical construction, vendors would insist that all government orders meet rigid specifications. See Brown, The Effect of Conscription of Industry on Contracts for the Sale of Goods, 90 U.Pa.L.Rev. 533, 545 n. 76, 547 n. 87 (1942). As the New York Court of Appeals stated in Mawhinney v. Millbrook Woolen Mills, supra,
132 N.E. at 96; accord, Dodd, Impossibility of Performance of Contracts Due to War-Time Regulations, 32 Harv.L.Rev. 789, 799 (1919).
In summary, then, we hold that the informal but nonetheless concerted government priorities policy in effect during the life of the contracts at issue in this case comes well within the terms of both the excusable delay clause and section 707 of the Defense Production Act. Therefore, McDonnell is excused under either of these provisions for any delays proximately resulting from the Government's priorities policy. We also conclude that the trial judge erred in instructing the jury that military priorities or any other event specifically provided for in the excusable delay provision must have been unforeseeable at the time of contracting. And finally, we hold that McDonnell was entitled to raise any defense available to it under the impracticability doctrine found in U.C.C. section 2-615. These errors by the District Judge deprived McDonnell of the substance, if not the form, of the defense accorded it by both contract and statute, and therefore necessitate our reversal of the judgment below.
V. The Determination of Eastern's Damages
During the six-week damages phase of this bifurcated trial, the jury was confronted with a staggering array of highly technical evidence concerning the lost profits, surplus pilot expenses, wasted pilot training and rescheduling costs which Eastern alleges it suffered as a result of the delivery
At trial and on appeal, McDonnell has vigorously contested several of the basic assumptions underlying Eastern's estimate of its damages. McDonnell relies on the established proposition that an expert's opinion as to lost profits and other damages must be predicated on assumptions which have a reasonable basis in the evidence. See, e. g., Terrell v. Household Goods Carriers' Bureau, 5 Cir., 1974, 494 F.2d 16, 22-24; Benham v. World Airways, Inc., 9 Cir., 1970, 432 F.2d 359, 360-61.
It is not enough, however, that several of Wemple's assumptions may be open to question.
Rather than anticipate the relitigation of this issue, we pretermit any assessment of the Wemple testimony. We do, however, make several suggestions which the District Court may consider in the event that a retrial of Eastern's damages claims becomes necessary. In our view, the trial judge is obliged to scrutinize most carefully unusually
The District Court must do more than merely weigh the probative value of an expert's testimony considered as a whole. Where practical, a trial judge should exclude particular assumptions or other aspects of an expert's testimony which considered individually do not meet the "minimum of probative value."
In this case, for example, Wemple should have considered whether Eastern's estimated loss of profits was reduced by the cost of financing those planes which were purchased rather than leased.
Finally, we note that the District Court has the discretion to call an expert witness on its own. See Danville Tobacco Assoc. v. Bryant-Buckner Associates, Inc., 4 Cir., 1964, 333 F.2d 202, 208-209, cert. denied, 387 U.S. 907, 87 S.Ct. 1688, 18 L.Ed.2d 624 (1967); Scott v. Spanjer Bros., Inc., 2 Cir., 1962, 298 F.2d 928; Judicial Conference of the United States, Handbook of Recommended Procedures for the Trial of Protracted Cases, 25 F.R.D. 351, 421-22 (1960); C. McCormick, Handbook of the Law of Evidence § 17 (1954); C. Wright & A. Miller, Federal Practice and Procedure § 2239 at 696 (1970), § 2602 at 778-79 (1971). The unusual difficulty of estimating a major airline's lost profits resulting from extensive delays stretching over a period of three years and involving 90 jet aircraft suggests to us that the jury might benefit from the testimony of a neutral expert in this case. Because a court-appointed witness would be unconcerned with either promoting or attacking a particular estimate of Eastern's damages, he could provide an objective insight into the $24.5 million difference of opinion between the parties' experts. Indeed, the mere presence of a neutral expert may have, in Judge Prettyman's phrase, "a great tranquilizing effect" on the experts retained by Eastern and McDonnell. Proceedings of the Seminar on Protracted Cases for United States Circuit and District Judges, 21 F.R.D. 395, 469 (1957).
Because of serious errors committed by the District Judge on a number of important and decisive questions of law—especially those relating to Eastern's obligation
REVERSED AND REMANDED FOR A NEW TRIAL.
SUMMARY OF CONTRACTS BETWEEN DOUGLAS AIRCRAFT AND EASTERN AIR LINES AND AMENDMENTS THERETO Contract No. Date No. of AircraftDAC 65-41-L July 9, 1965 15 (DC-9-14) AmendmentsNo. 1 April 26, 1966 (Decreased aircraft to 14) No. 2 May 13, 1966 (Decreased aircraft to 13) No. 3 May 19, 1966 (Decreased aircraft to 12) No. 4 May 27, 1966 (Decreased aircraft to 11) No. 5 July 1, 1966 (Decreased aircraft to 10) Agreement to Terminate, dated July 14, 1966 (Terminated Contract DAC 65-41-L) DAC 64-105-D July 9, 1965 24 (DC-9-31) AmendmentsNo. 1 Mar. 15, 1966 (Increased aircraft to 27) No. 2 Mar. 15, 1966 (Decreased aircraft to 17) No. 3 July 11, 1966 (Increased aircraft to 39) No. 4 Aug. 18, 1966 (Increased aircraft to 40) No. 5 Aug. 28, 1966 (Deleted 5 options) _____________________________________________________________ DAC 66-40-D Mar. 15, 1966 10 (DC-9-31) ______________________________________________________________ DAC 66-136-D Aug. 28, 1966 5 (DC-9-31) ______________________________________________________________ DAC 67-51-D Oct. 5, 1967 12 (DC-9-31) ______________________________________________________________ DAC 65-65-D July 9, 1965 4 (DC-8-61) AmendmentsNo. 1 Oct. 5, 1965 (Increased aircraft to 5) No. 2 Feb. 1, 1966 (Increased aircraft to 7) No. 3 July 12, 1966 (Increased aircraft to 9) No. 4 Aug. 28, 1966 (Deleted 2 options) _______________________________________________________________ DAC 66-130-D Aug. 28, 1966 3 (DC-8-61) AmendmentsNo. 1 Mar. 20, 1967 (No additions or deletions) No. 2 Apr. 27, 1967 (No additions or deletions) No. 3 Oct. 5, 1967 (Deleted 3 options) _______________________________________________________________ DAC 67-47-D Oct. 5, 1967 5 (DC-8-61) AmendmentNo. 1 June 10, 1968 (Deleted 10 options)
Special Verdict July 12, 1973 Miami, Florida We, the jury award the Plaintiff, EASTERN AIR LINES, INC. damages as follows: 1. Lost Operating profit: (a) DC-9-14 Aircraft for (1) 1966 $ 1,360,000 (b) DC-9-31 Aircraft for (1) 1966 $ 000 (2) 1967 $ 3,145,000 (3) 1968 $ 2,720,000 (c) DC-8-61 Aircraft for (1) 1966 $ 85,000 (2) 1967 $ 8,075,000 (3) 1968 $ 4,505,000 2. Wasted Pilot Training $ 313,438 3. Surplus Pilot Time Expense $ 1,816,163 4. Wasted Schedule Expense $ 200,000 INTEREST: To be determined from categories 1(a) (b) (c) and 2, 3, and 4 above and 5 below. 1(a) (1) DC-9-14 Aircraft $ 561,000 1(b) (1) DC-9-31 Aircraft 000 1(b) (2) DC-9-31 Aircraft $ 1,132,200 1(b) (3) DC-9-31 Aircraft 816,000 1(c) (1) DC-8-61 Aircraft $ 35,062 1(c) (2) DC-8-61 Aircraft $ 2,907,000 1(c) (3) DC-8-61 Aircraft $ 1,351,500 2. Wasted Pilot Training $ 129,291 3. Surplus Pilot Time Expense $ 749,162 4. Wasted Schedule Expense $ 72,000 5. Depreciation Reserve $ 1,897,500 So say we all. Jonathan Gillingham, FOREMAN
FAA Registration No. Delivery DateN8901E March 1966 N8902E March 1966 N8903E April 1966 N8904E April 1966 N8905E May 1966 N8906E May 1966 N8907E June 1966 N8908E June 1966 N8909E July 1966 N8910E July 1966 N8911E August 1966 N8912E August 1966 N8913E September 1966 N8914E September 1966 N8915E October 1966
Amendments to Contract 65-41-L Amendment Aircraft No. Date Buyer No.1 4/26/66 Railway Equipment Leasing Corporation N8901E 2 5/13/66 Greyhound Equipment Leasing Corporation N8902E 3 5/19/66 Greyhound Equipment Leasing Corporation N8903E 4 5/23/66 Greyhound Equipment Leasing Corporation N8904E 5 7/1/66 Greyhound Equipment Leasing Corporation N8905E
Plane 65-41-L Bankers Trust Actual Delivery Days Late Under Days Late Under No. Delivery Date Delivery Date Date 65-41-L Bankers TrustN8906E 5/66 7/66 7/19/66 49 0 N8907E 6/66 8/66 8/29/66 60 0 N8908E 6/66 8/66 9/11/66 73 11 N8909E 7/66 9/66 11/7/66 99 38 N8910E 7/66 9/66 10/27/66 68 27 N8911E 8/66 10/66 11/24/66 85 24 N8912E 8/66 10/66 11/30/66 91 30 N8913E 9/66 11/66 12/22/66 83 22 N8914E 9/66 11/66 12/29/66 90 29 N8915E 10/66 12/66 2/8/67 57 0 *___ ____ Total 755 Total 181
Jay V. Zimmerman Company v. General Mills, Inc., E.D.Mo., 1971, 327 F.Supp. 1198, 1204 (emphasis in original).
Uniform Sales Act § 49.
See R. Nordstrom, Handbook of the Law of Sales 430 (1970).
"[t]he term `merchant' as defined here roots in the `law merchant' concept of a professional in business. The professional status under the definition may be based upon specialized knowledge as to the goods, specialized knowledge as to business practices, or specialized knowledge as to both . . . ."
Uniform Commercial Code § 2-607, Comment 4.
Date Number of troopsDecember 31, 1964 23,000 June 30, 1965 103,000 December 31, 1965 184,000 June 30, 1966 322,000 December 31, 1966 455,000
50 App.U.S.C. § 2071.
The broad latitude given the President in this area can also be inferred from the declaration of policy found in section 2:
50 App.U.S.C. § 2062.
50 App.U.S.C. § 2154.
Section 103 imposes criminal sanctions for the violation of "any rule, regulation or order" issued under the Defense Production Act. 50 App.U.S.C. § 2073.
50 App.U.S.C. § 2153.
In the 1966 annual report of the Department of Commerce to the Joint Committee on Defense Production, the congressional group charged with overseeing the D.P.A., 50 App.U.S.C. § 2162, the Department noted that "many successful actions taken by BDSA to expedite defense deliveries were accomplished without formal action." This report was included in the Sixteenth Annual Report of the Activities of the Joint Committee on Defense Production, H.R.Rep. No. 1, 90th Cong., 1st Sess. 174 (1967). The District Court excluded the above-quoted sentence from evidence, Tr. 7446. This statement is clearly admissible as being part of a public agency's report "setting forth . . . the activities of the office or agency." Fed.R.Evid., Rule 803(8), 28 U.S.C.
The District Court also struck the following exchange during Eastern's cross-examination of Mr. Zepp.
The trial judge struck this testimony pursuant to his holding that only delays caused by formal ratings are excusable. Since we hold this to be an erroneous interpretation of the contracts and the Defense Production Act, all evidence of this sort should be presented for the jury's consideration upon the retrial of this case.
In a letter dated July 12, 1966, Major General C. W. Cecil of the Air Force wrote to Douglas urging compliance with the priorities policy of the Government, noting that "[a]s you are undoubtedly aware, production under [military] contracts assigned a priority rating will take precedence over unrated or civilian orders." The trial judge again erroneously refused to admit this evidence of informal government pressures.
This evidence was stricken by the trial judge. Eastern contends that Gerrity's evidence was properly excluded because the General could not himself issue a "DX" rating, and therefore could not have overridden the commercial, "DO"-rated orders. This is not entirely clear, however. Gerrity was Air Force Deputy Chief of Staff, Systems and Logistics, as well as Administrative Head of the Joint Aeronautical Materials Activity Command. The Commerce Department's report on the activities of the B.D.S.A. during 1966 includes as an exhibit a Defense Department presentation given throughout the nation to firms having defense contracts. The opening paragraph of this presentation states that each of the armed services had the right to apply "DX" priority to their orders:
H.R.Rep. No. 1, 90th Cong., 1st Sess., 192-93 (1967).
This description of the delegation of authority under the D.P.A. is supported by testimony of William N. Lawrence. Moreover, Major General Cecil of the Air Force wrote to Douglas on July 12, 1966, that both "DO" and "DX" ratings were "assigned by the procuring authority [i. e. the Air Force]."
Mr. Zepp's testimony, though, would seem to indicate that only the B.D.S.A. had authority to issue a "DX" rating. However, even assuming that General Gerrity did not himself have authority to issue the required rating, there is no doubt that a request from him to the B.D.S.A. would have achieved the same result. As Zepp testified, the B.D.S.A.'s procedure merely determined whether or not the Defense Department's claim of delay was accurate. Because Zepp and the B.D.S.A. subscribed to the "military first" policy, it would have been futile for affected firms to resist the informal jawboning. Consequently, the Gerrity letter should have been admitted as evidence of the government pressures placed on defense suppliers to grant military requirements over other "DO"-rated orders.
Although Eastern's counsel conceded in oral argument that Pratt & Whitney was late in delivering engines, he pointed to testimony of Arthur E. Smith, an executive of Pratt & Whitney, indicating that "by extraordinary effort," Douglas could get the engines installed out of their normal sequence on the assembly line without delaying delivery of the airplane. However, the record reveals that when Smith was asked directly whether the delivery of a Douglas plane to a customer was delayed by a lack of an engine, he replied:
A jury could infer from this testimony that, while aircraft already on the assembly line were not delayed by Pratt & Whitney, the manufacturing process could have been hindered at some earlier point by the engine delays.
6 A. Corbin, Contracts § 1328 n. 40 (1962, Supp.1964).
While it is true that Eastern failed to pursue the options available to it under section 2-616, both parties during the years 1966-1969 continued to perform as though the agreements remained in force without ever making reference to the Code procedures. Therefore, we cannot accept McDonnell's belated assertion that all the contracts were automatically terminated under section 2-616(2). A seller cannot employ this thirty-day termination provision to deprive an unwary buyer of his U.C.C. rights and remedies. Such an approach would frustrate section 2-616's purpose of protecting the buyer confronted with a claim of excuse under section 2-615. See Project, A Comparison of California Sales Law and Article Two of the Uniform Commercial Code (Part II), 11 U.C.L.A.L.Rev. 78, 104 (1963).
We do note, however, that the trial judge may have misled the jury by instructing it that McDonnell's defense would fail if the jury could not determine "what number of days of delay . . . was proximately caused by excusable factors." The court could more properly have informed the jury that McDonnell had to prove that a certain proportion of the delays were due to circumstances coming within the excusable delay clause without intimating that a particular day of delay had to be attributed to a specific excusing event.
Hawkland, supra, at 79.
Id. at 607, 72 S.Ct. at 895, 96 L.Ed. at 1177 (Frankfurter, J., concurring).
265 F. at 190 (dictum).
As will be discussed below, this issue has been resolved by section 707 of the D.P.A., 50 App.U.S.C. § 2157, which excuses all breaches resulting from compliance with a government order whether or not it is subsequently determined to be invalid. We note further, though, that the legality of a government act, while relevant, should not be the only factor considered in impracticability cases. Under section 2-616 of the Code, a good faith, commercially reasonable belief in the validity of a governmental interference with a contract would justify exoneration of the promisor. See Uniform Commercial Code s 2-615, Comment 10; cf. The Kronprinzessin Cecilie, 244 U.S. 12, 23-24, 37 S.Ct. 490, 492, 61 L.Ed. 960 (1917). As one court has demonstrated, in an analogous case, all the circumstances surrounding a breach which is claimed to be excused because of a supervening event should be examined to determine whether the promisor acted reasonably in failing to perform. Paper Makers Importing Co. v. City of Milwaukee, E.D.Wis., 1958, 165 F.Supp. 491.
18 Fed.Reg. 1684 (1953) (emphasis supplied). Certainly a government demand need not be in the form of a priority rating in order to constitute a "direction" or an "instruction."