## Facts

- Fairchild Stratos Corporation (Fairchild) planned to manufacture aluminum pleasure-boat hulls and sought bids for a highly automated stretch-wrap forming press to shape aluminum sheets over Fairchild’s existing dies.
- Lear Siegler, Inc., through its Hufford division (Hufford), contracted to design, build, deliver, and help place the press into production.
- Hufford’s proposal included express performance assurances, including that (1) “no hand work” would be required to form parts and (2) the equipment would produce ten hull halves per hour (six minutes per part) using Fairchild’s existing dies.
- Hufford also agreed to supply a qualified operating crew for three months to help reach full production and train Fairchild’s personnel.
- The press was due by July 1960, but Hufford missed the deadline; it was delivered around September 1960 and initially did not work.
- Hufford later promised to correct the problems by April 7, 1961. Fairchild did not insist on that date and continued working with Hufford, but then set June 1, 1961 as a final and absolute deadline to show the press met the contract warranties.
- Unknown to Hufford, Fairchild had also considered using the press for other products. Before June 1 arrived, Fairchild concluded it could not use the press for those other products and internally decided to end the deal.
- Hufford failed to meet the June 1 deadline (missing it by a few days). Fairchild rescinded the contract and sued for breach.
- The district court found Hufford in material breach as of June 1, allowed rescission, and awarded (1) Fairchild’s contract-related expenses and (2) amounts Fairchild paid to settle lawsuits brought by disappointed boat vendors after the boat program failed.
- Hufford appealed, challenging both liability and the scope of damages.

## Issues

1. Whether Hufford’s failure to have the press meet the express performance warranties by the parties’ final June 1, 1961 deadline was a material breach allowing Fairchild to rescind.
2. Whether Fairchild’s conduct—including disputed, partial nonpayment and its private decision to exit the project before June 1—barred rescission or excused Hufford’s nonperformance.
3. Whether Fairchild could recover as consequential damages the costs of settling third-party vendor lawsuits linked to Fairchild’s abandoned boat program.

## Decision

- The Fourth Circuit affirmed the finding that Hufford materially breached by failing to meet the contract’s warranted performance by the final June 1 deadline.
- The court agreed that Fairchild could rescind and recover damages measured by expenses directly tied to the contract and the defective press.
- The court rejected Hufford’s claim that Fairchild’s disputed, partial nonpayment amounted to a material breach; the dispute was treated as made in good faith and did not prevent Hufford from performing.
- The court modified the damages award by disallowing the vendor-settlement amounts (and related remote items), holding those losses were not sufficiently caused by Hufford’s breach and were not within what the parties reasonably contemplated when contracting.
- Disposition: affirmed as to liability and basic recovery, but modified to reduce damages by removing the vendor-settlement category.

## Legal Principles

- Express performance representations about output and required labor in a custom-machine contract can be treated as enforceable warranties; failure to meet them by an agreed final deadline may be a material breach.
- After repeated extensions and continued nonconforming performance, a buyer may set a final deadline and, if performance still is not achieved, elect rescission and restitution/reliance-type recovery for expenditures caused by the failed transaction.
- A good-faith dispute over payments, without substantial interference with the other party’s ability to perform, does not necessarily constitute a material breach that forfeits the right to rescind for the other party’s prior or continuing breach.
- Consequential damages require a legally sufficient causal link and reasonable foreseeability at the time of contracting; third-party settlement costs tied to the buyer’s later business shutdown may be too remote where the risk was not fairly allocated to the seller.

## Conclusion

Fairchild Stratos Corp. v. Lear Siegler, Inc. holds that Hufford’s inability to deliver a press that met “no hand work” and output warranties by the parties’ final June 1, 1961 deadline was a material breach supporting rescission and recovery of Fairchild’s contract-related expenses, but the Fourth Circuit cut back the award by excluding vendor-settlement losses that were not adequately connected to the breach or reasonably foreseeable when the parties made the contract.


Fairchild Stratos Corp. v. Lear Siegler, Inc., 337 F.2d 785 (1964)