Chugach Electric Ass'n v. Northern Corp.
1977 Alas. LEXIS 490, 562 P.2d 1053 (1977)
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Rule of Law:
When a performing party notifies the other party that a contract's specified method of performance is likely impossible, and the other party insists on performance, the insisting party impliedly warrants the method's feasibility. That party is then liable for costs incurred by the performing party from the point of insistence until the performing party has actual or constructive knowledge of the impossibility.
Facts:
- In 1966, Northern Corporation contracted with Chugach Electric Association to repair a dam, with a later amendment requiring Northern to haul rock across a frozen Cooper Lake (the 'ice haul method').
- During the winter of 1966-67, Northern encountered dangerously thin ice and water overflows, and it communicated these problems to Chugach.
- Despite Northern's objections, Chugach repeatedly insisted on performance.
- On March 11, 1967, a large piece of Northern's equipment, a Euclid loader, broke through the ice and was lost.
- Chugach again demanded performance, directing Northern on March 27 to resume work or be held in default, which Northern did.
- After more equipment nearly broke through the ice, Northern stopped work on March 31, 1967.
- The following winter (1967-68), ice conditions appeared significantly better, and Chugach again demanded that Northern complete the haul.
- On February 1, 1968, after Northern resumed work, two trucks broke through the ice, resulting in the loss of the trucks and the deaths of both drivers, at which point Northern ceased all operations permanently.
Procedural Posture:
- Northern Corporation sued Chugach Electric Association in the superior court (trial court) for damages representing its costs in attempting to perform the contract.
- Chugach filed a counterclaim seeking liquidated damages.
- The trial court ruled that performance was impossible, discharged both parties from the contract, and awarded no damages to either party.
- Northern appealed to the Supreme Court of Alaska, which affirmed the finding of impossibility but remanded the case for a determination of damages, initially under a 'constructive change order' theory.
- Upon a petition for rehearing by Chugach, the Supreme Court of Alaska modified its opinion, abandoning the change order theory in favor of an 'implied warranty' theory, and again remanded to the superior court.
- On remand, the superior court found that Chugach became liable on March 15, 1967, and that Northern gained actual knowledge of the impossibility on March 31, 1967, and awarded Northern damages only for that period.
- Both Northern and Chugach appealed the superior court's decision on remand to the Supreme Court of Alaska.
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Issue:
Did the trial court correctly apply the rule that a party who insists on performance after being notified of its potential impossibility becomes liable for the other party's extra costs incurred between the time of insistence and the time the performing party gains actual or constructive knowledge of the impossibility?
Opinions:
Majority - Rabinowitz, J.
Yes, the trial court correctly applied the rule regarding liability for costs after insisting on performance of a potentially impossible contract term. When Northern notified Chugach that the ice haul method was likely impossible and Chugach insisted on performance, Chugach impliedly warranted the method's feasibility, thereby shifting the risk of impossibility to itself. The court found that different standards of knowledge apply to each party; Northern only needed to communicate a belief of potential impossibility to trigger Chugach's options, while Chugach's insistence, in the face of that notice, created the warranty. Northern's right to recover costs ended when it obtained actual knowledge of the impossibility, which the trial court reasonably found was March 31, 1967, for the first season. The court also correctly treated the two winter seasons separately, as the dramatically improved ice conditions in the second winter reset both parties' reasonable beliefs about feasibility, meaning no implied warranty was in effect until the fatal accident definitively proved the impossibility.
Analysis:
This decision refines the doctrines of commercial impracticability and implied warranty by establishing a clear risk-shifting event. When one party expresses doubt about a method's feasibility, the other party's insistence on performance acts as an implied warranty, making them liable for ensuing costs. This precedent encourages parties receiving notice of potential impossibility to negotiate alternatives rather than blindly insisting on the original terms, as doing so effectively makes them an insurer of the problematic method. The ruling also clarifies that a temporary or seasonal impossibility does not permanently discharge a contract if conditions later change to make performance appear feasible again.
