Unpublished Disposition, 878 F.2d 387 (9th Cir. 1985)

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U.S. Court of Appeals for the Ninth Circuit - 878 F.2d 387 (9th Cir. 1985)

SOLID STATE TECHNOLOGY, INC., Debtor, Plaintiff-Appellant,v.SYSTEMS RESEARCH LABORATORIES, INC., Defendant-Appellee.

No. 85-2107.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted April 11, 1989.Decided June 20, 1989.

Before CHOY, WALLACE, and WIGGINS, Circuit Judges.


Solid State Technology, Inc. (SST) appeals a judgment for Systems Research Laboratories, Inc. (SRL) in SST's breach of contract action against SRL. SRL terminated the contract, claiming that SST had defaulted on the delivery schedule. SST contends that SRL agreed to a revised schedule and thus no default occurred. SST also argues that if a default occurred, SRL waived its right to terminate the contract. We affirm.


SST and SRL entered into a contract on June 3, 1980. SST contracted with SRL to supply an electrical component, a voltage control oscillator (VCO), for SRL's use in its contract with the United States Air Force. Initially, SST was to deliver 20 prototype VCOs, followed by production quantities upon Air Force approval. The contract was formally modified four times by change order documents. The fourth modification specified that SST was to deliver eight VCOs on May 5, 1981, and nine VCOs on June 15, 1981.

In early June 1981 only four VCOs had been delivered under the fourth change order schedule. SST and SRL agree that an oral schedule modification occurred at that time, but they dispute its terms. SRL asserts that SST proposed a new schedule on June 4, calling for a series of deliveries from June 8 through June 24. SRL claims that SST failed to meet that schedule and proposed a new schedule on June 10, calling for a series of deliveries from June 15 through June 30. SST claims, however, that the new schedule provided a final delivery date of June 30, 1981, with no interim dates specified.

On June 10, SST's president, Joseph Spaziani, visited SRL's facilities. He was shown a copy of a letter SRL was sending to SST. The letter, sent to SST on June 12, referred to the delivery dates established in the fourth change order, as well as dates verbally established on June 4 and June 10. The letter advised SST that it had missed scheduled deliveries and that time was of the essence. The letter requested immediate acknowledgement and notification of excusable causes of delay.

On June 29, 1981, Spaziani phoned SRL to propose a new delivery schedule. He spoke with Neil Hoelle, an SRL administrator. Spaziani suggested deliveries on June 30, July 1, and July 2. He testified that Hoelle replied that this proposal was "okay." Gary Garlough, Hoelle's superior, testified that although Hoelle told him of SST's latest proposed schedule, Garlough did not approve the proposal. On June 30, none of the outstanding VCOs had been delivered.

On July 1, 1981, SST delivered seven VCOs. Also on July 1, SST's chief electrical engineer, Aaron Shipow, phoned SRL and requested additional time to deliver the remaining four VCOs. SRL had not yet received a reply to its June 12 letter regarding the timeliness of SST's performance. On July 2, 1981, SRL sent SST a mailgram and confirming letter terminating the contract for default. On July 7, 1981, SRL received the last four VCOs.

In September 1981 SST filed for bankruptcy. SST filed this breach of contract action against SRL in the bankruptcy court. The contract action was transferred to the district court and tried on the liability issue. On April 29, 1985, the court entered judgment for SRL. SST timely appealed. We have jurisdiction under 28 U.S.C. § 1291 (1982).


* The district court found that SRL did not agree to the new delivery schedule proposed by SST on June 29, 1981. SST contends that this finding is clearly erroneous. Under Fed. R. Civ. P. 52(a), a district court's " [f]indings of fact ... shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses." Under this standard, the appellate court must accept the district court's findings unless upon review the court is left with the definite and firm conviction that a mistake has been made. United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948); Northwest Acceptance Corp. v. Lynnwood Equip., 841 F.2d 918, 922 (9th Cir. 1988).

Spaziani, SST's president, testified that he phoned SRL on June 29, 1981, and suggested a new delivery schedule to Hoelle. He testified that Hoelle replied "okay." SST argues that this testimony establishes that the district court's finding was clearly erroneous. Garlough, Hoelle's supervisor at SRL, testified as to how his office handled SST's requests to change delivery schedules. When SST called Hoelle to suggest new schedules on June 4 and June 10, Hoelle communicated that information to Garlough, who then discussed it with his supervisor. Garlough testified that he approved the June 4 and June 10 schedules and told Hoelle to inform SST of that decision. Garlough testified, however, that he did not approve SST's June 29 proposal.

The district court had an opportunity to assess the credibility of the witnesses. Furthermore, SST presented no evidence that Hoelle had authority to bind SRL. We conclude that the district court's finding that SRL did not agree to the new delivery schedule was not clearly erroneous.


SST contends that the district court erred in concluding that SRL did not waive timely delivery of the VCOs. SRL had a contractual right to terminate the contract if SST defaulted. SST maintains that SRL waived its right to terminate. "The question of waiver of a contractual right is ... a question of fact and subject to the clearly erroneous standard." Kern Oil & Refining Co. v. Tenneco Oil Co., 840 F.2d 730, 736 (9th Cir.), cert. denied, 109 S. Ct. 378 (1988); see also CBS, Inc. v. Merrick, 716 F.2d 1292, 1295 (9th Cir. 1983) (Fed. R. Civ. P. 52(a) standard applies to trial court's finding on the existence of a waiver).

SST contends that by its conduct, SRL waived its right to terminate the contract for SST's default. To establish a waiver, SST must show that (1) SRL failed to terminate within a reasonable time after the default, under circumstances indicating forbearance by SRL, and (2) SST relied on SRL's failure to terminate, and continued performance with SRL's implied or express consent. See DeVito v. United States, 413 F.2d 1147, 1154 (Ct. Cl. 1969). Whether a waiver has occurred depends on the facts in the particular case. Pelliccia v. United States, 525 F.2d 1035, 1042-43 (Ct. Cl. 1975).

The district court found that in May 1981 SST defaulted under the schedule established by the fourth change order. The parties then agreed to a new schedule on June 4, 1981. The district court found that SST defaulted again under that schedule. The parties agreed to another schedule on June 10, 1981. At this point, SST may have been justified in believing that timely delivery was not essential. On June 12, however, SRL sent a letter to SST reinstating the importance of timely delivery. The letter advised that SST had missed several deliveries and specified that "time is of the essence." SRL indicated that it would accept final delivery by June 30 if SST assumed liability for SRL's damages stemming from the delay. The letter concluded by stating that "SRL cannot overemphasize the importance of adherence to time schedules...."

SST argues that the letter failed to establish that time was of the essence because it invited SST to negotiate on the issue of assuming liability for damages. SST further contends that the letter is ineffective because it did not explicitly declare SRL's intention to terminate the contract for default if SST failed to deliver. SST contends that the letter and SRL's prior conduct indicated that it would forbear any delinquency, and that SRL expressly encouraged SST to continue performance under the contract.

We conclude that the district court's finding that no waiver occurred is not clearly erroneous. Although the June 12 letter did not expressly state SRL's intention to terminate if SST defaulted, it did reinstate the importance of timely delivery and conveyed SRL's unwillingness to forbear default absent SST's assumption of liability. When SST neither responded to the letter nor made scheduled deliveries, SRL exercised its right to terminate. Since the letter referred to a final delivery date of June 30, 1981, it was not unreasonable for SRL to wait until that date had passed to issue its termination notice. The notice was sent promptly thereafter, on July 2, 1981.


SST argues that SRL was not justified in terminating the contract because SST had substantially performed its obligations at the time of termination. The district court made no finding on this issue. The substantial performance doctrine, however, does not avoid termination for late performance in situations where time is of the essence. See Franklin E. Penny Co. v. United States, 524 F.2d 668, 676 (Ct. Cl. 1975). We conclude that the district court did not err in failing to find that SST substantially performed its obligations under the contract. SRL had granted SST several extensions. Although SRL agreed to the revised June 10 schedule, it insisted upon timely delivery. SST failed to comply. Since SRL stressed that time was of the essence, SST cannot claim substantial performance to set aside the default termination.


SST claims that the district court erred in failing to find that the termination was unconscionable. SST argues that the termination caused it to forfeit the production portion of the contract. Since forfeiture is disfavored, SST argues, this court should grant relief. SST appears to raise this issue for the first time on appeal. As a general rule, this court will not consider an issue raised for the first time on appeal. Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir. 1985). We decline to address SST's forfeiture argument on appeal.


The judgment of the district court is AFFIRMED.


This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3