Reliance Cooperage v. Treat
195 F.2d 977 (8th Cir. 1952)

  • Reliance contracted to buy 300k oak bourbon staves (barrels) from Treat for $450 per thousand, by December 31st.
    • The price of raw materials kept going up and up, and Treat realized that he’d lose a lot of money. He told Reliance that wanted to raise the price to $625 per thousand.
  • Reliance refused to pay the higher price, made an anticipatory breach of the contract, and immediately sued.
    • Reliance argued that Treat was liable to pay the difference between the market price in December and the contract price ($450).
      • Despite the fact that it was only August and Treat wasn’t due to deliver the barrels until December.
    • Treat argued that he should only have to pay the difference between the market price in August and the contract price.
      • In August, Reliance could have bought staves from another company at a price that may have been higher than $450, but was probably less than it was going to be in December.
    • Btw, an anticipatory breach occurs on a clear repudiation of a party’s contract duties before the time has come for performance.
  • The Trial Court found for Treat. Reliance appealed.
    • The Trial Court found that Reliance could have, upon receiving Treat’s refusal to perform, bought similar staves by reasonable efforts and without undue risk or expense. Therefore, they were only due the difference between the price at time of refusal and the contract price.
      • Basically, the Court said that Reliance could only get as much money as the difference between the price in August and $450.
  • The Appellate Court reversed.
    • The Appellate Court found that Reliance was entitled to the difference between the market price on the day Treat was to deliver the barrels (December 31st) minus $450.
    • The Court noted that that the doctrine of anticipatory breach is intended to aid the injured party, and any effort to convert it into a benefit to the repudiator should be resisted.
      • Ordinarily there is no duty to mitigate until there are damages to mitigate, and this would not have occurred until December 31st. If Treat changed his mind and decided to comply with the contract, Reliance would have had to accept and pay for the staves.
  • When the price is fluctuating, pinning down when to calculate damages can be very important.
    • Measuring market price at the time of the seller’s repudiation gives the seller the ability to fix buyer’s damages and may induce the seller to repudiate rather than abide by the contract.
    • On the other hand, measuring damages at the time of performance will tend to dissuade the buyer from covering, in hopes that the market with continue upward.
    • Courts came up with the concept of reasonable time as a compromise. This means that if the seller repudiates, the buyer’s damages should be calculated by use of the market price at the expiration of a commercially reasonable time after the buyer has learned of the repudiation.
      • Of course, what is ‘reasonable’?