Also known as: substitute performance · substituted performances · substitution of performance
Written by attorneys — see sources below.
A contractual doctrine requiring a party to tender and accept a commercially reasonable substitute when an agreed manner of performance becomes impracticable without fault of either party. The doctrine preserves the exchange by adjusting only the means of performance rather than discharging the duty entirely. It applies when the substitute allows substantial performance that remains practicable.
CoolTech agreed to manufacture 100,000 thermostats for Harbor by a fixed deadline. A fire destroyed one specialized assembly line. CoolTech could still produce 60,000 units on time using another existing line without unreasonable cost or delay. Harbor insisted on delivery of the feasible portion.
Sterling Manufacturing contracted to ship goods to Synergy Systems using a specified type of refrigerated rail car. The agreed carrier type became unavailable due to a sudden industry shortage. A commercially reasonable substitute using refrigerated trucks was available and would reach the destination on schedule. Synergy Systems demanded the substitute delivery.
Sebastian Santos contracted to build a custom home for Samantha Stone using a unique imported stone that later became unavailable. A commercially reasonable domestic substitute stone was available without unreasonable cost. Samantha Stone demanded tender and acceptance of the substitute rather than damages or discharge.
Sapphire Holdings agreed to supply 100,000 custom brackets to Stonehaven Properties. A government export ban made production of 20,000 high-tolerance brackets impracticable. Sapphire Holdings could still produce the remaining 80,000 standard brackets using a reasonable substitute alloy. Stonehaven Properties demanded the feasible portion.
Nexxus Products entered a distribution agreement with Best that required Best to perform promotional services. An industry shortage made Best's original distribution method impracticable. Best tendered a commercially reasonable substitute distributor. Nexxus refused to accept the substituted performance.
In 1979 Nexxus Products Company, a California corporation that formulates and markets hair care products, negotiated with Best Barber & Beauty Supply Company, Inc., a Texas corporation in the business of distributing beauty and hair care products to retail stores, barber shops and beauty salons throughout Texas. Between March and July 1979 Mark Reichek, Best’s president, negotiated with Stephen Redding, Nexxus’ vice-president, over a possible distribution agreement between Best and Nexxus. This resulted in an August 2, 1979 distributorship agreement executed in the form of a July 24, 1979 letter from Reichek to Redding under which Best would serve as the exclusive distributor of Nexxus hair care products to barbers and hair stylists throughout most of Texas except El Paso. The July 24, 1979 letter set forth pricing terms, Nexxus’s agreement to underwrite training and seminars, payment by letter of credit, and termination provisions allowing cancellation only on the anniversary date with 120 days’ prior notice and requiring Nexxus to buy back inventory at cost if it terminated the relationship. In July 1981 Sally Beauty Company, Inc., a Delaware corporation with its principal place of business in Texas and a wholly-owned subsidiary of Alberto-Culver Company, acquired Best in a stock purchase transaction and merged Best into Sally Beauty, which succeeded to Best’s rights and interests in all contracts; Alberto-Culver is a major manufacturer of hair care products and a direct competitor of Nexxus. Shortly after the merger Stephen Redding met with Michael Renzulli, president of Sally Beauty, and wrote a letter stating that Nexxus would not allow Sally Beauty to distribute its products because Sally Beauty was wholly owned by a direct competitor. In August 1983 Sally Beauty commenced this action by filing a complaint in the Northern District of Illinois, claiming that Nexxus had violated the federal antitrust laws and breached the distribution agreement. Nexxus moved for summary judgment on the breach claim. The district court granted the motion on January 31, 1985. The remaining claims were dismissed by stipulation in May 1985, and final judgment was entered on the breach of contract claim.
View caseTransatlantic Financing agreed to carry cargo for the United States via the Suez Canal. Closure of the canal made the agreed route unavailable. A commercially reasonable substitute route via the Cape of Good Hope was available and completed on schedule. The United States demanded acceptance of the substitute performance.
Transatlantic Financing Corporation, the operator of the SS CHRISTOS, entered into a voyage charter with the United States on October 2, 1956, for the carriage of a full cargo of wheat from a United States Gulf port to a safe port in Iran. The charter specified the points of origin and destination but did not indicate the route to be taken. On July 26, 1956, the Government of Egypt nationalized the Suez Canal Company. During the ensuing international crisis, on October 27, 1956, the SS CHRISTOS sailed from Galveston on a course that would have taken her through the Suez Canal. Israel invaded Egypt on October 29, 1956, followed by invasions of the Suez Canal Zone by Great Britain and France on October 31, 1956. On November 2, 1956, the Egyptian Government closed the Suez Canal to traffic by obstructing it with sunken vessels. After the closure, Transatlantic's representative contacted an employee of the United States Department of Agriculture on or about November 7, 1956, to request instructions on the cargo and to seek additional compensation for a voyage around the Cape of Good Hope. The ship changed course and arrived in Bandar Shapur, Iran, on December 30, 1956. Transatlantic later filed a libel against the United States in the District Court seeking recovery of the costs attributable to the diversion around the Cape of Good Hope. The District Court dismissed the libel, and Transatlantic appealed to the United States Court of Appeals for the District of Columbia Circuit.
View caseWhen only part of performance becomes impracticable, the duty to render the remaining part continues if that remaining performance is still practicable and substantial, taking account of any reasonable substitute the obligor is under a duty to render.
Supporting sources
Yes. When without fault of either party an agreed type of carrier becomes unavailable but a commercially reasonable substitute is available, the substitute performance must be tendered and accepted.
Supporting sources
When procuring a suitable substitute performance would be difficult to value accurately through money damages, a court may find damages inadequate and grant specific performance or another equitable remedy.
Supporting sources