Maple Farms, Inc. v. City School District
76 Misc. 2d 1080, 14 U.C.C. Rep. Serv. (West) 722, 352 N.Y.S.2d 784 (1974)
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Rule of Law:
An increase in the cost of goods, even if substantial, does not excuse a seller's performance under a fixed-price contract on the grounds of commercial impracticability unless the cost increase is due to a truly unforeseeable contingency that alters the essential nature of the performance. Foreseeable market fluctuations are considered a business risk allocated to the seller in a fixed-price agreement.
Facts:
- The plaintiff, a milk dealer with over 10 years of experience, was familiar with the government-controlled price of raw milk, which had historically fluctuated.
- On June 15, 1973, the plaintiff contracted to supply the defendant school district with milk for the 1973-1974 school year at a fixed price of $.0759 per half pint.
- At the time of the contract, the price of raw milk was $8.03 per hundredweight (cwt).
- Following the agreement, major grain sales by the U.S. to Russia and unanticipated crop failures caused a sharp rise in the price of raw milk.
- By December 1973, the price of raw milk had risen to $9.89 cwt, a 23% increase from the price in June when the contract was made.
- The price increase would cause the plaintiff to sustain a projected loss of $7,350.55 on the contract.
- Starting in October 1973, the plaintiff requested that the defendant release it from the contract, but the defendant refused.
Procedural Posture:
- The plaintiff milk dealer filed an action for declaratory judgment in a New York trial court.
- The plaintiff sought a judicial declaration that its performance under the contract should be excused on the grounds of impossibility or impracticability.
- The plaintiff moved for summary judgment.
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Issue:
Does a 23% increase in a seller's cost for raw milk, caused by market forces, render performance of a fixed-price supply contract commercially impracticable under Uniform Commercial Code § 2-615, thereby excusing the seller from performance?
Opinions:
Majority - Charles B. Swartwood, J.
No. A 23% increase in a seller's cost for raw milk does not render performance commercially impracticable under UCC § 2-615. The court reasoned that the core purpose of a fixed-price contract is to allocate the risk of price fluctuations. Here, the risk of a price increase, even a substantial one, was allocated to the plaintiff seller. The court applied a three-part test, finding that: 1) the contingency (price increase) was not entirely unforeseeable to an experienced businessperson aware of market volatility and inflation; 2) the risk of such fluctuations is implicitly assumed by the seller in a fixed-price contract who fails to include a price escalation clause; and 3) the resulting financial loss, while significant, did not rise to the level of being 'commercially impracticable' as it did not alter the essential nature of the performance required by the contract. Increased cost alone, without a truly unforeseeable event that changes the fundamental basis of the agreement, is a business risk that does not justify excusing performance.
Analysis:
This decision solidifies the high threshold for successfully claiming commercial impracticability under UCC § 2-615, especially in the context of fixed-price contracts. It reinforces the principle that courts will not rewrite contracts to save a party from a deal that has become unprofitable due to foreseeable market risks. The case serves as a strong precedent that general market volatility and cost increases, short of a catastrophic and truly unforeseeable event, are considered part of the assumed risks of doing business. For future commercial actors, this opinion underscores the critical importance of incorporating protective clauses, such as price escalation or force majeure provisions, into contracts to manage the risk of fluctuating costs.
