10.5.3.2 Notes - Roehm v. Horst | rauvinj | September 27, 2012

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10.5.3.2 Notes - Roehm v. Horst

Original Creator: Kessler, Gilmore & Kronman Current Version: rauvinj
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NOTE

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1. In a two-part article on Repudiation of Contracts, 14 Harv. L. Rev. 317, 421 (1901), Professor Samuel Williston mounted an all-out attack on the doctrine of Hochster v. De La Tour and Roehm v. Horst that is, the doctrine that, following repudiation by one party, the other party can immediately bring an action without awaiting the time scheduled for performance. Williston wrote (14 Harv. L. Rev. at 438-439; footnotes have been omitted):

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The reason most strongly urged in support of the doctrine of anticipatory breach is, however, its practical convenience. It is said that it is certain that the plaintiff is going to have an action, it is better for both parties to have it disposed of at once. It may be conceded that practical convenience is of more importance than logical exactness, but yet the considerations of practical convenience must be very weighty to justify infringing the underlying principles of the law of contracts. The law is not important solely or even chiefly for the just disposal of litigated cases. The settlement of the rights of a community without recourse to the courts can only be satisfactorily arranged when logic is respected. But it is not logic only which is injured. The defendant is injured.  He is held liable on a promise he never made. He has only promised to do something at a future day. He is held to have broken his contract by doing something before that day. Enlarging the obligation of contracts is perhaps as bad as impairing it. This may be of great importance. Suppose the defendant, after saying that he will not perform, changes his mind and concludes to keep his promise. Unless the plaintiff relying on the repudiation, as he justly may, has so changed his position that he cannot go on with the contract without injury, the defendant ought surely to be allowed to do this. But if the plaintiff is allowed to bring an action at once this possibility is cut off. "Why," says Fuller, C.J., "should a locus poenitentiae be awarded to the party whose wrongful action has placed the other at such disadvantage?" Because such is the contract the parties made. A promise to perform in June does not preclude changing position in May.

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With respect to Chief Justice Fuller's suggestion that "the doctrine of anticipatory breach only applies to contracts where there are mutual obligations," Williston commented: "This has not before been suggested, though in fact the cases where the doctrine has been applied have been cases of bilateral contracts. Lord Cockburn's line of reasoning [in Frost v. Knight] is certainly as applicable to unilateral as to bilateral contracts." 14 Harv. L. Rev. at 438 n.1.

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2. In Hochster v. De La Tour, counsel for the defendant took the position, in his argument, that:

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[A]n announcement of an intention to break the contract when the time comes is no more than an offer to rescind. It is evidence, till retracted, of a dispensation with the necessity of readiness and willingness on the other side; and, if not retracted, it is, when the time for performance comes, evidence of a continued refusal; but till then it may be retracted.

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Crompton, J., put to counsel the question: "May not the plaintiff, on notice that the defendant will not employ him, look out for other employment, so as to diminish the loss?" Counsel replied: "If he adopts the defendant's notice, which is in legal effect an offer to rescind, he must adopt it altogether." Lord Campbell, C.J., remarked: "So that you say the plaintiff, to preserve any remedy at all, was bound to remain idle." Counsel conceded that that in effect was his position (118 Eng. Rep. at 925). Thus the argument was that plaintiff, on receiving defendant's notice of repudiation, had two permissible courses of action and only two: he could accept the "offer to rescind," thereby abandoning any claim for damages; alternatively, he must remain ready, willing and able to perform down to June 1, the defendant being at liberty at any point to "retract" his repudiation. What he could not do, according to counsel's argument, was to take the repudiation as final, accept other employment and still preserve a right to recover damages from the defendant for breach.

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3. Professor Corbin was as thoroughgoing an advocate of the doctrine of anticipatory breach as Professor Williston (at least in 1901) had been its opponent. In Corbin's analysis of Hochster v. De La Tour he suggests that defendant's counsel may have lost his case by claiming too much in his all or nothing argument and thus have driven the court to an extreme position. It would have been entirely possible, Corbin points out, to handle the case by declaring that defendant's repudiation released the plaintiff from the contract and privileged him to accept other employment at once without thereby forfeiting his right to damages but that the damage action itself could not be brought before June 1 (or perhaps September 1) (4 Corbin §960). Williston, in the article referred to in Note 1 supra, had also made the point that Lord Campbell, who wrote the Hochster v. De La Tour opinion, was "apparently misled" by counsel's argument. 14 Harv. L. Rev. at 432.

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4. What, exactly, did the Massachusetts court say in Daniels v. Newton, supra p. 1270? Do you feel that it was a good idea to allow the plaintiff in Hochster v. De La Tour to begin his action on May 22 instead of handling the case in the manner suggested by Professor Corbin? Do you feel the same way about allowing the action in Roehm v. Horst to be brought in January, 1897? It appears from the opinion in Roehm v. Horst that it was customary to make future or forward delivery contracts for hops. Suppose there had been no futures market. Should that make any difference?

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5. In Pakas v. Hollingshead, 184 N.Y. 211, 77 N.E. 40 (1906), the contract was for the sale of 50,000 pairs of bicycle pedals, to be delivered and paid for in installments during 1898 and 1899. The seller defaulted after delivering 2,608 pairs of pedals. In March, 1899, the buyer brought an action in which he recovered damages for the pedals (19,000 pairs) which the seller ought to have delivered up to that point. In February, 1900, he brought a second action to recover damages for the balance. The second action was dismissed. O'Brien, J., commented that "the plaintiff cannot split up his demand and maintain successive actions, but must either recover all his damages in the first suit or wait until the contract matured or the time for the delivery of all the goods had arrived." Does this result seem to follow from Roehm v. Horst, which is cited approvingly in the course of Judge O'Brien's opinion?

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6. In Equitable Trust Co. of New York v. Western Pacific Railway Co., 244 F. 485 (S.D.N.Y. 1917), it appeared that the Western Pacific was obligated to make periodic payments to Equitable, as trustee for its bondholders, to cover interest on the bonds and to establish a sinking fund. The Denver & Rio Grande, at a time when it was about to take over control of the Western Pacific, undertook that, to the extent the operating income of the Western Pacific was insufficient to allow it to make the payments to Equitable, the Denver & Rio Grande would make up any deficiencies by purchasing the Western Pacific's promissory notes. Subsequently, the Denver & Rio Grande publicly announced that it would refuse to perform its obligation unless the Western Pacific bondholders "consented to abate their legal demands [in a foreclosure proceeding] and . . . deposit their bonds with the bankers so as to effect some compromise." 244 F. at 501. On March 1, 1915, the Denver & Rio Grande defaulted on its undertaking. Equitable, as trustee, brought an action for relief. Counsel for the defendant contended, inter alia, that

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the trustee might not elect to treat the default of the Denver Company of March 1, 1915, as a repudiation of all its liabilities under the contract in question and an anticipatory breach of the same, and therefore, even assuming it might sue for a single breach and recover damages, it must be content to avail itself in some form of its successive rights as they become due semiannually.

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244 F. at 494. Judge Learned Hand concluded that the conduct of the Denver & Rio Grande amounted to "repudiation without even pretense of justification," which gave the trustee "the right to treat the contract at an end and to sue." He then went on:

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But it is said that such a result implied the possibility of the anticipatory breach of an obligation merely to pay money, and that the doctrine does not go so far. Washington Co. v. Williams, 111 Fed. 801, 49 C.C.A. 621; McCready v. Lindenborn, 172 N.Y. 400, 65 N.E. 208; Werner v. Werner, 169 App. Div. 9, 154 N.Y. Supp. 570. There are dicta to the same effect in Roehm v. Horst, 178 U.S. 1, 20 Sup. Ct. 780, 44 L. Ed. 953; Nicolls v. Scranton S. Co., 137 N.Y. 471, 33 N.E. 561; Kelly v. Security Mutual Life Ins. Co., 186 N.Y. 16, 78 N.E. 584, 9 Ann. Cas. 661; Moore v. Security Trust & Life Ins. Co., 168 Fed. 496, 93 C.C.A. 632. In these cases it is generally stated that the doctrine only applies to cases which are mutually executory, but that must be deemed authoritatively overruled by Central Trust Co. v. Chicago Auditorium, 240 U. S. 581, 36 Sup. Ct. 412, 60 L. Ed. 811, L.R.A. 1917B, 580, in which the promisee had wholly performed. In this court, at least the limitation of mutuality cannot therefore apply. Furthermore, if performance remains mutually executory, the doctrine still applies, even though the promise is only to pay money, because that is the situation in the ordinary contract of sale repudiated by the buyer, Roehm v. Horst, supra. Lovell v. St. Louis Mutual Ins. Co., 111 U.S. 264, 4 Sup. Ct. 390, 28 L. Ed. 423, is another case where the promise was only to pay money. If the doctrine has any limits, they only exclude, and that arbitrarily enough, cases in which at once the promisee has wholly performed, and the promise is only to pay money.

Assuming what I do not mean to admit, that it has such limits, they result because the eventual victory of the doctrine over vigorous attack (e.g., 14 Harv. Law Rev. 428; Daniels v. Newton, 114 Mass. 530, 19 Am. Rep. 384) has not left it scatheless. Its basis in principle is that a promise to perform in the future by implication includes an engagement not deliberately to compromise the probability of performance. A promise is a verbal act designed as a reliance to the promisee, and so as a means to the forecast of his own conduct Abstention from any deliberate act before the time of performance which makes impossible that reliance and that forecast ought surely to be included by implication. Such intermediate uncertainties as arise from the vicissitudes of the promisor's affairs are, of course, a part of the risk, but it is hard to see how, except by mere verbalism, it can be supposed that the promisor may within the terms of his undertaking gratuitously add to those uncertainties by announcing his purpose to default. Even the opponents of the doctrine concede that, if there be such an implied promise, its breach may drag in the damages upon the main promise. 14 Harv. Law Rev. 434, 435.

Whatever the lack of logic in refusing to apply the doctrine to notes or bonds or the like, there can be no valid distinction between an ordinary contract of sale or of insurance, which the buyer or the insurer repudiates, and a contract like this, because this was not a contract unconditionally to pay fixed sums at fixed intervals. Rather, as the defendant is so fond of insisting, it was, at least in form, a contract of purchase, and no one has suggested that it makes any difference whether you buy hops or notes so far as this point goes. At least this consideration applies unconditionally to any repudiation of the new Denver Company to the Pacific Company. Not only in form was this a contract of purchase, but the Pacific Company had continuing obligations to perform while it continued. 1 agree that the same is not so true of the promises to the trustee which are here in suit, i.e., 4(b) of article 2; yet I should, even if the trustee had no duties, be unwilling to make so arbitrary a cleavage in the doctrine at the expense of every consideration not only of principle, but of justice. For, if it were held that the doctrine applies as between the New Denver Company and the Pacific Company, but not between the New Denver Company and the trustee, this would be the result. Suppose that A. agrees with B. and C. to purchase a series of notes of B. and pay part of the proceeds serially to c., and he repudiates the whole enterprise midway in its performance. B. may sue at once, and recover damages for the future installments, but C. may not, because C. is bound to no further performance. It is safe to say that the law is not so whimsically capricious as that; yet that by hypothesis is precisely this case.

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244 F. at 501-502.

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February 15, 2015

10.5.3.2 Notes - Roehm v. Horst

10.5.3.2 Notes - Roehm v. Horst

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