Sales and Leases | 171
1. Contingency’s Nonoccurrence as a Basic Assumption of the Contract In determining whether the contingency’s nonoccurrence was a basic assumption of the contract, the pivotal query is whether the parties did contemplate the contingency or should have contemplated it—or, put another way, whether the contingency was reasonably foreseeable. Typical, market-based fluctuations in price and increases in costs are normally contingencies that the parties should anticipate—indeed, they are precisely the sort of contingency for which sales contracts are made. Similarly, courts generally hold that the seller bears the risk of a failure in supply, absent contrary agreement. However, some circumstances that produce increased costs or supply failure may suffice to excuse the seller’s performance. Prime examples include war, embargo, crop failure (sometimes, if foreseeable), natural disasters, and unforeseen shutdown of major supply sources. [ See U.C.C. § 2-615, cmt. 4 (1951); 2 Hawkland UCC Series § 2-615:2, Westlaw (database updated June 2021).] a. Cost Increases In general, garden-variety cost increases are foreseeable. Thus, in the usual case, cost increases will not furnish a basis to excuse the seller’s obligations under § 2-615. Indeed, the very reason parties enter into fixed-price contracts is to place the risk of cost increases on the seller (and the risk of cost decreases on the buyer). However, sometimes, cost increases arise from unforeseeable intervening events, such as war, embargo, and so on, that alter the performance’s essential nature. Here, the unforeseeable event, together with its resulting cost increases, may amount to a contingency whose nonoccurrence was a basic assumption of the contract. [ See U.C.C. § 2-615, cmt. 4 (1951); 2 Hawkland UCC Series § 2-615:2, Westlaw (database updated June 2021).] Examples : (1) A uranium supplier contracted to sell a stated quantity of uranium to a power plant over time at fixed prices. Soon after, a confluence of factors caused the cost of obtaining and supplying uranium to soar, including an unexpectedly high chloride content in the uranium, fluctuating currency exchange rates, and sharply rising market prices for uranium. Accordingly, the supplier sought to invoke § 2-615 for relief from its obligations. On similar facts, a federal district court held that § 2-615 had no basis to apply. For one, because the parties entered a fixed-price contract, the general risk of cost increases was on the seller. What is more, the chloride content, fluctuating exchange rates, and rising uranium prices were foreseeable and, in fact, foreseen at the time of contracting. [ Adapted from Exelon Generation Co., LLC v. Gen. Atomics Tech. Corp. , 559 F.Supp.2d 892 (N.D. Ill. 2008).]
(2) A manufacturer contracted to sell electrical transformers to a power company at stated prices. Core steel was a crucial component in the manufacture of transformers. Two types
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