Autotrol Corp. v. Continental Water Systems Corp.

918 F.2d 689 (7th Cir. 1990)

 

RULE:

Where a party to a contract can recover losses in a substitute contract, there is no recoverable loss. If not, the losses are costs and a breach gives a right to recovery.

FACTS:

Plaintiff-appellee, Autotrol Corporation, and defendants-appellants, Continental Water Systems Corporation, signed a joint venture to create large and small systems for water purification but there was ambiguity about the dividing line between large and small. The agreement dictated that Autotrol was to manufacture and sell the large systems while Continental the small ones, but product specifications were not written prior to the contract signing. The contract dictated that if the parties were unable to agree on the product specifications, either party could terminate the contract by the deadline, June 30. The deadline and its mutually-agreed upon extension, July 17, passed and the specifications still were not finalized. Defendant encouraged plaintiff to continue working until defendant terminated the contact, a year later. The plaintiff, who claimed a breach of contract, was awarded $1.5 million.

ISSUE:

Is an oral modification enforceable if the modification is supported by consideration and the party seeking relief relied on the modification?

ANSWER:

Yes.

CONCLUSION:

The court found that the modification of the contract to waive one defendant’s right to terminate was supported by consideration, and that both parties benefitted from relaxing the deadline, inasmuch as this allowed the project to proceed. The court found that although oral, and somewhat vague about the duration of defendant’s commitment, the modification was sufficiently definite to be enforceable, and an oral modification was enforceable under state law even if the contract, plaintiff’s expenses would not have been incurred. Therefore, they were recoverable as damages because the breach deprived plaintiff of the opportunity to recover them by making and selling the water-purification systems envisaged by the contract.
Trial court judgment affirmed in favor of plaintiff manufacturer.

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