## Facts

- A.E. Sterling owned three orange groves in San Bernardino County, California: the Upper Orchard, the Triangle, and Klondike.
- Sterling and A. Gregory, a fruit dealer, entered a single written arrangement covering fruit from all three groves.
- Under the arrangement, Gregory agreed to buy all oranges from the Upper Orchard at 1¼ cents per pound.
- For the Triangle and Klondike groves, Gregory was to handle, pack, ship, and sell the oranges for Sterling’s account for a per-box handling fee.
- Evidence supported Gregory’s position that the Upper Orchard price was above market and was part of an overall exchange in which Gregory expected profit from handling the Triangle and Klondike fruit.
- Gregory began performance by accepting and paying for Upper Orchard oranges.
- Before Upper Orchard deliveries were complete, Sterling sold the Triangle and Klondike fruit to other buyers, depriving Gregory of the handling rights promised to him.
- Gregory treated Sterling’s diversion as a failure of consideration, rescinded the arrangement, restored what he had received, and stopped buying further Upper Orchard fruit.
- Sterling sold the remaining Upper Orchard oranges to others at a lower price and sued Gregory for the difference between the contract price and the resale price for the undelivered Upper Orchard fruit.

## Issues

1. Whether the parties’ arrangement was an entire (indivisible) contract or severable contracts as to the three groves.
2. If the arrangement was entire, whether Sterling’s diversion of the Triangle and Klondike fruit justified Gregory’s rescission and termination of further performance, including buying Upper Orchard oranges.

## Decision

- The California Supreme Court affirmed judgment for Gregory.
- The Court held the evidence supported treating the arrangement as one entire contract covering all three groves.
- Because the contract was entire, Sterling’s breach as to the Triangle and Klondike groves materially defeated the exchange and entitled Gregory to rescind and cease further performance.
- Sterling therefore could not recover expectation damages measured by the Upper Orchard contract price after breaching the integrated bargain.

## Legal Principles

- Whether a contract is entire or severable turns on the parties’ intent and whether the promises and consideration are interdependent parts of a single exchange.
- When consideration is interrelated and one component is understood as inducement for another, a jury may find the agreement entire rather than divisible.
- For an entire contract, a material breach of a substantial part by one party excuses the other party’s remaining performance and permits rescission when restitution is made.
- A party who materially breaches an entire contract cannot enforce the remaining portion as if it were a separate agreement.

## Conclusion

The court treated the multi-grove arrangement as a single, interdependent exchange and held that Sterling’s diversion of fruit from two groves was a material breach that allowed Gregory to rescind the whole contract and stop buying the remaining Upper Orchard crop, barring Sterling’s claim for the contract-resale price difference.


Sterling v. Gregory, 85 P. 305 (Cal. 1906)