In re Oscar Nebel Co., 7475.

• Decision Date: 24 January 1941
• Docket Number: No. 7475.,7475.
• Citation: 117 F.2d 326
• Parties: In re OSCAR NEBEL CO., Inc. PORRECA v. FREEMAN.
• Court: U.S. Court of Appeals — Third Circuit

117 F.2d 326 (1941)

In re OSCAR NEBEL CO., Inc.

PORRECA v. FREEMAN.

No. 7475.

Circuit Court of Appeals, Third Circuit.

January 24, 1941.

Bernard R. Cohn, of Philadelphia, Pa., for appellant.

Henry Arronson and Harry A. Rutenberg, both of Philadelphia, Pa., for appellee.

Before BIGGS, CLARK, and GOODRICH, Circuit Judges.

GOODRICH, Circuit Judge.

This is an appeal from an order entered in the District Court for the Eastern District of Pennsylvania upon the report of a Special Master.

The litigation turns upon the rules of law applicable to the consequences of nonperformance of a contract entered into on November 20, 1937, between the appellant as buyer and the appellee as seller. The seller agreed to sell and deliver to the buyer certain machines in the seller's factory at Hatboro, Pa., delivery to be as they stood upon the floor and removal to be at the buyer's risk. The buyer agreed to pay $5,000 down and another $5,000 the following month and to pay the $90,000 balance at the rate of $2,000 for each machine as delivered, stipulating, however, that he was to take not less than eight machines each month beginning January, 1938. Another clause of the contract provided that "The purchase of the said machinery and equipment is made subject to delivery free from any labor difficulties". It was agreed that the first $10,000 payment thus provided for was to constitute liquidated damages to be retained by the seller in case of default by the buyer.¹

The buyer paid the first $10,000 as provided in the contract. During the month of January, 1938, he neither paid nor tendered anything at all and upon the first of February, 1938, the seller notified the buyer that the seller claimed "the moneys heretofore deposited" as liquidated damages under the provisions of the contract. It is this $10,000 which the buyer now seeks to have allowed as a claim in the reorganization proceedings of the seller. Although the question arises in a reorganization proceeding the rights and liabilities of the parties turn upon the law of Pennsylvania where all the operative facts occurred.

The first law question in the case is whether there was a substantial breach of the contract by the buyer. This question calls for an affirmative answer. The contract was performable over a period of four months. The entire first month went by without performance, tender of performance or indication of willingness of performance by the buyer. The breach was substantial in any case, the more so when it occurred at the beginning. Restatement, Contracts § 275. Since there was a substantial breach by the buyer the seller was justified in refusing to go further and making a claim for damages. Pittsburg Steel Foundry v. Pittsburg Steel Co., 1909, 223 Pa. 430, 72 A. 813; G. B. Hurt, Inc., v. Fuller Canneries Co., 1920, 269 Pa. 85, 112 A. 148.

The second question in the case is whether this $10,000 may be retained by the seller as liquidated damages, as stipulated in the agreement. The question of whether the stipulation for liquidated damages is to be upheld or whether it is to be disregarded as a provision for a penalty does not turn upon the language used by the parties. In general, the question is whether the amount so fixed is a reasonable forecast of just compensation for the harm that is caused by the breach where that harm is incapable or very difficult of accurate estimation. Restatement, Contracts § 339. General statements to the effect that a penalty will not be enforced are true but of little help upon a particular set of facts. The amount in this case seems reasonable. It was 10% margin upon a $100,000 transaction. There was no testimony by either party as to the difficulty in measuring damages. Therefore, we do not know, nor have we means of knowing, whether there is such a standardized market for used...