244 N.Y. 202 (1927)

War suspends contractual obligations between belligerents if the contract is executory, and the obligations are discharged if resuming them after the war would thwart the contract’s essential purpose or materially impair its value.

Summary

This case concerns the impact of World War I on a contract between a New York company (Farmers Feed) and German citizens (the Neumonds) regarding a trademark option and restrictions on the Neumonds’ business activities. The court held that the war suspended the contract’s obligations, and because the plaintiffs’ obligations expired during the war, the defendant’s obligation to make payments was discharged. The court reasoned that reviving the payment obligation after the war would be inequitable, as the defendant did not receive the full benefit of the bargain due to the wartime suspension of the plaintiffs’ obligations.

Facts

The Neumonds, German citizens, had a partnership buying and selling grains in Germany and the US, owning the trademark “Goldnes Kalb.” They granted Farmers Feed an option to buy the trademark, contingent on the Neumonds discontinuing their grain business. Farmers Feed agreed to pay $2,000 annually for the option and the Neumonds’ agreement to restrict their business activities within a specific territory. The contract also included restrictions on Farmers Feed’s sourcing of grains. One of the Neumonds resided in Germany, and the other, initially in New York, was later interned after the US entered World War I.

Procedural History

Farmers Feed made the payment due shortly after the war began but then stopped making payments. The Neumonds sued to recover the unpaid installments. The lower courts ruled in favor of the plaintiffs, holding that the defendant must pay the stipulated consideration for the plaintiffs’ contractual obligations. This appeal followed.

Issue(s)

Whether the contractual obligation of Farmers Feed to make stipulated payments to the Neumonds revived at the close of World War I, after the Neumonds’ obligations under the contract had been suspended and expired during the war.

Holding

No, because the suspension of the Neumonds’ obligations during the war resulted in a failure of consideration, making it inequitable to require Farmers Feed to resume payments after the war.

Court’s Reasoning

The court reasoned that war suspends executory contracts between belligerents. If the contract’s essential purpose is thwarted by delay or its value materially impaired, the contract is terminated. Here, the Neumonds’ obligation to restrict their business and the contingent option to purchase the trademark were suspended during the war. By the time the war ended, the period for these obligations had expired. The court stated, “the truth is, that the doctrine of the revival of contracts suspended during the war is one based on considerations of equity and justice, and cannot be invoked to revive a contract which it would be unjust or inequitable to revive.” The consideration for Farmers Feed’s payment was the Neumonds’ promise to restrict their business and grant the option. Because the war suspended the Neumonds’ obligations, Farmers Feed did not receive the full benefit of the bargain. Although Farmers Feed’s option was contingent, it had potential value before the war. However, the suspension of the Neumonds’ obligations eliminated any chance of the contingency arising. The court concluded that it would be unfair to require Farmers Feed to pay for a “chance it never received.”