in statu quo by returning the performance which he has received. It should be observed that the difficulties presented by contracts of the kind in question are not entirely absent from wholly divisible contracts. The price for one instalment is fixed on the assumption that all the instalments are to be carried out. The price for a month's service is fixed on the assumption that the contract will be carried out for the full term, and if it were not for these assumptions, the price might well have been different. The necessary adjustment of the rights of the parties, however, can be made with more justice and less violence to the terms of the contract by leaving the defendant to his remedy by cross action or counterclaim, rather than by excusing him from performing his own promise. But though the injured party is thus bound to perform the portions of the contract for which he has received the full agreed exchange, his obligation to perform other executory portions of the contract will depend on the materiality of the breach.4

3

§ 873. A bilateral contract to form a future contract or sale. A bilateral contract may bind the parties thereto to enter into another contract in the future. If the parties both fulfil

Thus in Simpson v. Crippin, L. R. 8 Q. B. 14, the contract was to take monthly for a year a certain quantity of coal at a certain price per ton; the value of the coal is less in mid-summer than in mid-winter, yet a debt for the contract price would arise for coal furnished under the contract at any

season.

When a young graduate of a law school enters into a contract for a year's employment in an office at a certain salary for each month, he obtains a right to his monthly salary by serving the first week or month, irrespective of his future failure to perform the remainder of the contract, yet it is obvious that his services at the beginning of the term are of slight value.

4 In Rosenthal Paper Co. v. Na

tional, etc., Paper Co., 175 N. Y. App. Div. 606, 162 N. Y. S. 814, the owners of letters patent granted the defendant an exclusive license in consideration of royalties at a specified rate for each article sold, which the seller agreed should not be less than $500 for each year of the five-year contract. The licensor agreed to protect the patent from infringement. It was held that this agreement was not an independent covenant and that though the licensee was bound to pay the agreed royalty for each article sold, he was not bound, in view of the licensor's breach of promise, to pay the agreed minimum of $500. The Court of Appeals allowed full recovery, on the ground that the defendant had continued to enjoy the benefit of the contract. 226 N. Y. 313, 123 N. E. 766.

their obligations two successive contracts will be formed. The second contract may be either bilateral or unilateral. A bilateral contract to issue and to take insurance is not uncommon. When a policy of insurance is actually issued, a second contract is entered into. A contract to enter into a charter party, or to enter into a lease, or to make a conveyance are other illustrations. There can be no dependency between the obligations of a preliminary contract and those of the second contract. The performances of the mutual promises in the preliminary contract are the exchange for one another. Neither of these performances is the exchange for a performance under the subsequent contract. Therefore one who contracts for insurance, though entitled to such a policy as is customary, and justified in refusing any other, is liable for the premium if he actually accepts a policy of a kind which does not fulfil the obligation of the insurer in the preliminary contract.

One who agrees to charter a vessel, may refuse to take the vessel if it does not comply with the express and implied undertakings of the contract. But if the vessel is once taken, it is no defence to the obligation to pay the freight, that the vessel did not fulfill the terms of the preliminary contract. The promise to give such a vessel is in exchange for the promise to take such a vessel, not for the promise to pay freight." Similarly, one who contracts to take a lease, need not do so if the promises of the lessor in regard to the leased property are not kept. But having once taken the lease, he is bound to pay rent for the leased premises whatever breach of his preliminary contract the lessor may have committed. The same is true in the case of a contract to buy real or personal property. If such a sale is fully executed on both sides, there is no opportunity for the question to arise, but if the sale is on credit, or if the seller makes warranties either by deed or otherwise, the second transaction is at least in part an executory contract. It is no defence to the liability on such an executory obligation, that there has been a breach of the

The contrary decision of Thompson v. Gillespy, 5 El. & Bl. 209, is justly

criticised in Langdell, Summary of Contracts, § 119.

See infra, § 890.

preliminary contract." What has been said does not necessarily affect the right wholly to rescind the second transaction on account of a breach of the prior one. In case of fraud, or such mistake as justifies rescission, and even in case of a material breach of the promise in the preliminary contract, the second transaction should be set aside and rescission allowed, if the parties can be put in statu quo, but not otherwise.&

§ 874. Distinction between performance and preparation for performance.

A party to a contract frequently will not be able to perform it unless he makes certain preliminary preparations, but he does not on that account bind himself contractually to make such preparation. One who contracts to sell goods of certain description cannot do so unless he first procures the goods, and it may be supposed if he procured them it would be necessary to give an order long in advance; yet the mere failure to give such an order has never been held a breach of contract. It is a question of construction where the line is to be drawn between the performance to which a party binds himself, and the preparation which, as matter of fact, is necessary as a preliminary to such performance. The failure to perform a necessary preliminary within the time when it must be performed though in itself not a breach of contract, may, nevertheless, justify the other party in refusing to perform or to continue performance on his side. It is at least an indication justifying the belief that even should the promise on the other side be performed, the equivalent for the performance would not be given.9

§ 875. Prospective breach of promise excuses performance of the counter promise.

The same principle of justice which forbids the enforcement of a promise when the counter promise has been broken, also forbids enforcement when it is evident that the counter promise will be broken. Prospective failure of consideration is as good 7 See cases in the preceding section.

8 Ibid.

See the following sections.

an excuse as actual failure. The only difficulty is to determine when it is sufficiently certain that there will be nonperformance of a counter promise due in the future, to justify non-performance of a promise due in the present. Certainly it can make no difference in the justice of the excuse, what the reason for the apparent future non-performance may be. The effect of prospective inability and of prospective unwillingness of the party whose promise is not yet due must be the same, and the cases may be divided under those two headings. It is important to bear in mind in considering the matter that the question is not whether there has been an anticipatory breach of the contract. Prospective failure of consideration, whether involving such a breach or not may be an excuse to one who refuses because of it to perform his own promise or condition; 10 but the prospective failure must not only be

10 See the following sections, also infra, §§ 1315, 1331. In Freeth v. Burr, L. R. 9 C. P. 208, and in General Billposting Co. v. Atkinson, [1909] A. C. 118, it was said that the test of whether a breach was sufficient to justify the other party in abandoning the contract was whether there was an intimation of an intention to abandon and altogether refuse performance of the contract, and though this statement is open to criticism, see supra, § 866, it is at least true, as said by Lord Blackburn in Mersey Steel & Iron Co. v. Naylor, 9 A. C. 434, that such an intimation is, if not "the only ground of defence a sufficient ground of defence."

In Wilkie & Turnbull v. Schultz, 35 La. Ann. 491, the principle was applied to a charter party, "The refusal of the charterer to comply with his contract, except on condition of enforcement of a verbal alteration of the terms thereof, alleged to have been assented to by the master, dispenses with default. Under such state of facts, the master is not bound to hold the vessel until the last day stipulated for demurrage, but may seek his load

elsewhere, without forfeiting his right to damages under the contract."

In Moffat v. Davitt, 200 Mass. 452, 457, 86 N. E. 929, the court said: "The defendant became the owner of the foundry under an agreement to assume and pay the outstanding merchandise indebtedness of the vendor, which included bills due or to become due to the plaintiffs for iron already delivered or to be furnished in the future. The plaintiffs do not contend that evidence of the defendant's failure to pay this indebtedness according to the terms of the sale had any connection with the contract, for the breach of which the present action was brought, but they contend that it was admissible on the issue of repudiation. Upon this question much evidence, including numerous letters between the parties, was introduced. If repudiation of the contract by one of the contracting parties may be shown by proof of an unqualified refusal of performance directly made to the other party, it also may be shown by proof of such conduct on his part as to leave no other reasonable inference. After the defendant purchased and carried

sufficiently certain, but sufficiently material in character. Especially after part performance the prospect of a slight breach, no more than the actual occurrence of such a breach will justify refusal to proceed with the contract.11 Any conduct of a party to a contract whether such conduct is