Alamance County Board of Education v. Bobby Murray Chevrolet, Inc.
465 S.E.2d 306 (1996)
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Rule of Law:
Under U.C.C. § 2-615, a seller's failure to deliver goods is not excused on the grounds of commercial impracticability when the failure of its supplier was a foreseeable contingency for which the seller assumed the risk. A seller implicitly assumes this risk if it does not secure a contract with its supplier to guarantee performance or fails to include an exculpatory clause in its contract with the buyer.
Facts:
- Bobby Murray Chevrolet, Inc. (Bobby Murray), a General Motors (GM) franchisee, submitted a bid to supply approximately 1200 school bus chassis to the North Carolina Division of Purchase and Contract (the Division), which represented various school boards.
- The bid specified "Chevrolet" brand chassis, which were to be manufactured by GM Truck.
- The Division accepted Bobby Murray's bid, and the school boards placed their orders.
- On July 26, 1990, the Environmental Protection Agency (EPA) enacted new emissions standards that would render the engines specified in the bid non-compliant after January 1, 1991.
- On August 10, 1990, GM sent a message to Bobby Murray warning of a potential shortage of Allison automatic transmissions, a key component for the chassis.
- On November 30, 1990, GM informed Bobby Murray that the orders for the chassis would not be filled due to the unavailability of the Allison transmissions.
- The necessary transmissions would not be available until after the new EPA regulations took effect, making it illegal to install the originally specified engines.
- On or about December 11, 1990, Bobby Murray notified the Division that the chassis could not be supplied.
Procedural Posture:
- A number of North Carolina school boards (plaintiffs) sued Bobby Murray Chevrolet, Inc. (defendant) in the trial court for breach of contract.
- Bobby Murray filed a third-party complaint against General Motors Corporation (GM).
- The plaintiffs moved for summary judgment against Bobby Murray, and GM moved for summary judgment against Bobby Murray.
- The trial court granted summary judgment in favor of the plaintiffs and against Bobby Murray.
- The trial court denied GM’s motion for summary judgment.
- Bobby Murray (appellant) appealed the trial court's grant of summary judgment in favor of the school boards (appellees) to the North Carolina Court of Appeals.
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Issue:
Does the failure of a seller's supplier to provide goods, a risk that was foreseeable to the seller, constitute commercial impracticability under U.C.C. § 2-615 sufficient to excuse the seller's non-performance of its contract with the buyer?
Opinions:
Majority - John, Judge
No, the failure of a seller's supplier to provide goods does not excuse the seller's performance under U.C.C. § 2-615 when that failure was a foreseeable risk the seller assumed. Bobby Murray's performance is not excused because it assumed the risk of its supplier, General Motors (GM), failing to provide the chassis. The court reasoned that the failure of a source of supply only excuses performance if the parties had a basic assumption that the source would not fail. Here, the contract did not specify GM as the exclusive source, and even if it had, the risk of GM's failure was foreseeable to Bobby Murray. The dealer agreement between Bobby Murray and GM explicitly stated that orders were not binding until 'Released to Production' and that production could be affected by 'component availability.' Therefore, Bobby Murray, by not securing a firm contract with GM or including a single-source clause in its contract with the plaintiffs, assumed the risk of supply failure. Furthermore, the intervening EPA regulation was not an excuse because the contract placed the responsibility on Bobby Murray to monitor governmental restrictions, and it was aware of the impending changes but failed to notify the plaintiffs or seek alternatives.
Analysis:
This case significantly clarifies the commercial impracticability defense under U.C.C. § 2-615 in North Carolina, establishing it as a narrow doctrine. It firmly places the risk of a foreseeable supplier default on the seller, especially a middleman, unless that risk is expressly shifted to the buyer in the contract. The ruling underscores the importance for sellers to secure their supply chains through binding contracts or to protect themselves with specific contractual clauses. By applying an objective standard of foreseeability, the court discourages sellers from claiming surprise at common commercial risks and reinforces the principle of holding parties to their contractual bargains.
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