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Pa. Exch. Bank v. United States - 145 Ct. Cl. 216, 170 F. Supp. 629 (1959)

Rule:

An assignment for the benefit of creditors operates as a present and total breach of a contract, for it is an implied condition in every contract that the promisor will not permit itself, through insolvency or acts of bankruptcy, to be disabled from making performance.

Facts:

Plaintiff business contracted with defendant United States for the production of "microwave magic tees." The contract contained four steps. The first three required plaintiff business to make preparations for producing the tees. The fourth step, actual production, would only take place in the event of a national emergency. In addition, plaintiff business was to retain all necessary means for production for six years after completion of the first three steps. After substantial completion of the first three steps and payments from defendant, plaintiff business--rather than filing for bankruptcy--made an assignment for the benefit of its creditors to plaintiff assignees. Further payments from defendant United States were withheld. The plaintiff filed a lawsuit alleging anticipatory breach of the contract against the government. The government counterclaimed, asserting breach of contract. Both parties filed a motion for summary judgment.

Issue:

Should the plaintiff's anticipatory breach of the contract be granted?

Answer:

No

Conclusion:

The United States Court of Claims held that plaintiff business breached the contract by making the assignment because after assignment it could no longer perform the last step of the contract. Step four was the ultimate objective of the contract, under which plaintiff business was to stand ready for six years to produce tees in an emergency. Thus, the United States' summary judgment motion was granted, and plaintiffs' motion was denied. The Court ruled that defendant was entitled to recover damages for plaintiff's breach of its contract. The measure of damages was the cost of repairing the damage caused by plaintiff's breach. While this seems a heavy price for plaintiff to have to pay for its insolvency, the defendant ought not to pay this cost, because, through plaintiff's fault, it did not get what it bargained for. 

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