## Facts

- A prime contractor for a Washington dam project subcontracted with a supplier to design and furnish gate-hoist equipment under a purchase order incorporating project specifications.
- The hoists’ required capacity depended on gate weight determined by the project’s gate specifications; the supplier’s bid price reflected its own pre-bid calculations.
- The prime contractor rejected the supplier’s proposed hoist designs as nonconforming to the specifications.
- The supplier agreed to redesign but insisted on additional compensation beyond the contract price for the needed modifications, offering to negotiate only the amount, not entitlement to extra payment.
- After months of correspondence, the supplier stated it would not proceed with the required modifications unless the prime contractor agreed to a higher stipulated price.
- The prime contractor cancelled the subcontract, obtained substitute hoists at higher cost, and sought the price differential as damages.
- After trial, the district court found the supplier anticipatorily breached and awarded the prime contractor $46,823 on its counterclaim; the supplier appealed.

## Issues

1. Whether the contract required the supplier to provide hoists conforming to the incorporated specifications for the agreed contract price.
2. Whether the supplier’s refusal to proceed unless paid additional, non-contract compensation constituted anticipatory breach justifying cancellation and damages.

## Decision

- The court affirmed the district court’s interpretation that the supplier was obligated to furnish conforming hoists at the contract price under the purchase order and incorporated specifications.
- The court held the supplier’s conditional refusal to perform absent extra payment was an anticipatory breach (repudiation).
- The prime contractor was justified in cancelling and covering through a replacement supplier.
- The $46,823 award, reflecting the additional cost of substitute performance, was affirmed.

## Legal Principles

- A party repudiates a contract by stating it will not perform unless the other party agrees to materially different terms not required by the contract.
- Where a contract incorporates specifications, the supplier bears the duty to deliver conforming work for the agreed price absent a contractual adjustment mechanism.
- Unilateral pre-bid cost or design assumptions do not shift the risk of specification compliance when the written contract terms control.
- After anticipatory breach, the non-breaching party may cancel and recover expectation damages measured by the reasonable cost of substitute performance (cover) minus the contract price.

## Conclusion

The Ninth Circuit affirmed judgment for the prime contractor because the subcontract required conforming hoists at the agreed price, and the supplier’s insistence on extra payment as a condition of performance was anticipatory repudiation supporting cancellation and cover damages.


Pacific Coast Eng'g Co. v. Merritt-Chapman & Scott Corp., 411 F.2d 889 (9th Cir. 1969)