Eastern Air Lines, Inc. v. McDonnell Douglas Corp.
532 F.2d 957 (1976)
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Rule of Law:
Under U.C.C. § 2-607(3)(a), a buyer must provide the seller with timely notice that it considers a late delivery to be a breach of contract to preserve its right to sue for damages. Furthermore, an excusable delay clause that specifically provides for delays caused by governmental acts or priorities relieves a seller of liability for such delays, regardless of foreseeability, and includes informal but coercive government pressure to prioritize military production.
Facts:
- In 1965, Eastern Air Lines entered into a series of contracts with Douglas Aircraft, Inc. (later McDonnell Douglas) to purchase nearly 100 jet aircraft for delivery between 1965 and 1968.
- Each contract contained an 'excusable delay' clause, exempting Douglas from liability for delays due to causes beyond its control, including 'any act of government, governmental priorities, allocation regulations or orders.'
- Beginning in 1966, Douglas experienced significant production delays, which it attributed to labor and material shortages caused by the escalation of the Vietnam War.
- During this period, the U.S. government informally pressured Douglas and its subcontractors to prioritize military orders over civilian contracts, a practice known as 'jawboning.'
- Throughout the 1966-1968 period of delays, Eastern executives repeatedly expressed 'concern' and 'disappointment' to Douglas about the late deliveries and the financial burden they imposed.
- During the same period, Eastern continued to negotiate new contracts and amend existing ones with Douglas without formally asserting that the ongoing delays constituted a breach of contract.
- In public statements, annual reports, and government filings, Eastern consistently attributed the delivery delays to the demands of the Vietnam War and military priorities.
- Several months after the final aircraft was delivered in 1969, Eastern formally presented McDonnell Douglas with a claim for damages resulting from the delays, asserting the delays were not excusable.
Procedural Posture:
- Eastern Air Lines filed a suit for breach of contract against McDonnell Douglas in the U.S. District Court for the Southern District of Florida.
- The district court bifurcated the trial into separate liability and damages phases before the same jury.
- During the liability trial, the judge ruled as a matter of law that U.C.C. § 2-607's notice requirement was inapplicable to late deliveries.
- The judge also instructed the jury that only formal, written government ratings or directives could constitute an excusable delay under the contracts.
- The jury returned a special verdict finding that none of the 7,426 days of total delivery delay were excusable.
- During the subsequent damages phase, the jury awarded Eastern approximately $22.2 million in compensatory damages and $9.6 million in interest.
- The trial judge later reduced the prejudgment interest award in a post-verdict ruling.
- McDonnell Douglas appealed the judgment to the U.S. Court of Appeals for the Fifth Circuit.
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Issue:
Does U.C.C. § 2-607(3)(a), which requires a buyer to notify a seller of a breach within a reasonable time, apply to breaches for late delivery, and is the adequacy of such notice a question of law for the court or a question of fact for the jury?
Opinions:
Majority - Ainsworth, Circuit Judge
Yes, U.C.C. § 2-607(3)(a) applies to late deliveries, and the adequacy of notice is a question of fact for the jury. The court held that the trial court erred in ruling that notice is not required for late deliveries. The purpose of notice is not merely to inform the seller of the fact of delay, which the seller already knows, but to inform the seller that the buyer considers the delay a breach of contract for which it intends to seek damages. This policy promotes settlement and protects sellers from stale claims where they were led to believe performance was accepted. The court, citing Judge Learned Hand, emphasized the distinction between notice of the facts and notice of the buyer's claim of breach. The adequacy of this notice is a question for the jury, which must evaluate the buyer's entire course of conduct under the standard of commercial good faith. For a merchant buyer like Eastern, this includes considering its expressions of dissatisfaction alongside its continued business dealings, public statements that seemed to accept the seller's excuse, and conflicting testimony regarding assurances that no claim would be filed. The court also held the trial judge erred on the excusable delay defense. The contract's specific mention of 'governmental priorities' as an excuse means that delays caused by such priorities are excused regardless of whether they were foreseeable. Furthermore, informal but coercive government 'jawboning' qualifies as an 'act of government' under the clause, and the defense is not limited to formal, written directives. The case was reversed and remanded for a new trial.
Analysis:
This case is a leading authority on the U.C.C. § 2-607 notice requirement, clarifying that it applies fully to breaches for late delivery, not just to defects in tendered goods. It establishes that for merchants, the adequacy of notice is a fact-intensive inquiry judged by a standard of commercial good faith, requiring an evaluation of the parties' entire course of dealing rather than isolated complaints. The decision also provides a broad, pragmatic interpretation of 'act of government' in force majeure clauses, recognizing the reality of informal but coercive government pressure ('jawboning') as a valid excuse for non-performance. Finally, it distinguishes between the U.C.C.'s default foreseeability requirement for impracticability and specific contractual risk-allocation, holding that when parties explicitly list an excusing event, they have allocated that risk, and foreseeability becomes irrelevant.
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