United States v. Wegematic Corp.
360 F.2d 674 (1966)
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Rule of Law:
A seller who contracts to manufacture and deliver a technologically advanced product assumes the risk that the technology may be more difficult or expensive to develop than anticipated. Such difficulties do not excuse performance under the doctrine of commercial impracticability unless the contract explicitly shifts that risk.
Facts:
- In June 1956, the Federal Reserve Board solicited proposals for a new general-purpose computer system, emphasizing the importance of early delivery.
- Wegematic Corp. submitted a proposal for a new ALWAC 800 computer, promoting it as a 'truly revolutionary system' and promising delivery nine months from the contract date.
- In September 1956, the Board ordered an ALWAC 800 from Wegematic for $231,800, with a required delivery date of June 30, 1957.
- The contract included a clause for $100 per day in liquidated damages for delay and authorized the Board to procure a substitute and hold Wegematic responsible for any excess cost.
- In March 1957, Wegematic first suggested postponing the delivery date.
- In April 1957, Wegematic officially informed the Board that delivery would be delayed until October 30 due to a necessary redesign.
- In August 1957, Wegematic stated delivery could be delayed into 1959.
- In mid-October 1957, Wegematic announced it had become 'impracticable to deliver the ALWAC 800' due to 'engineering difficulties' and requested the contract be cancelled without damages.
Procedural Posture:
- The United States sued Wegematic Corp. in the U.S. District Court for the Southern District of New York for breach of contract.
- Following a trial, the district court found in favor of the United States.
- The district court awarded the United States $235,806 in damages, including liquidated damages, the excess cost of a replacement computer, and other expenses.
- Wegematic Corp., as the defendant-appellant, appealed the judgment to the U.S. Court of Appeals for the Second Circuit.
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Issue:
Does a seller's failure to deliver a new computer system constitute an excusable breach of contract under the doctrine of commercial impracticability when performance is hindered by unforeseen engineering difficulties that would be very expensive and time-consuming to resolve?
Opinions:
Majority - Friendly, Circuit Judge
No. A seller's failure to perform due to its own technological difficulties is not excused by the doctrine of commercial impracticability. The court reasoned that the central question under UCC § 2-615, which it adopted as the governing federal law, is which party assumed the risk of the unforeseen event. When a manufacturer promotes a product as a 'revolutionary breakthrough,' it implicitly assures its feasibility and thus assumes the risk that development may be more difficult and costly than expected. To allow the impracticability defense would permit sellers to gamble on their unproven technology at the buyer's expense. If Wegematic wished to be excused from such risks, it should have included specific exculpatory language in the contract. Furthermore, the court found the evidence of true impracticability unconvincing, as the projected redesign costs were not necessarily prohibitive when considered in relation to the entire planned product line, not just the single unit ordered by the Board.
Analysis:
This decision is significant for establishing that in contracts involving new or developing technology, the seller, as the expert party, bears the risk of its own inability to perform. By applying the UCC's commercial impracticability doctrine (§ 2-615) as federal common law, the court set a precedent that mere financial difficulty or the need for extensive redesign does not excuse performance. This ruling protects buyers who rely on a manufacturer's representations and places a heavy burden on sellers of innovative products to either ensure they can deliver on their promises or expressly contract for relief from the risks of technological failure. It clarifies that the impracticability defense is not meant to save a party from a deal that simply becomes unprofitable or difficult.
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