R § 264: If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made
(2) Supervening death or disability of a person necessary for performance
BUT, if someone else could easily step in, then impossibility would not be a good defense
R § 262: If the existence of a particular person is necessary for the performanceof a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made
(3) The destruction, deterioration or failure to come into existence of a thing necessary for performance
Ex: A music hall burns down
Therefore, a contract for performance at that music hall is impossible because the venue no longer exists
R § 263: If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made
Impracticability
Applies to a situation in which performance is NOT impossible, but it no longer makes sense to enforce performance
Like a qualified impossibility defense
The impracticability defense has to relate to a basic assumption of the contract
Party asserting impracticability defense needs to show:
The event makes performance substantially more expensive or difficult
R § 261: Where, after a contract is made, a party’s performance is made impracticablewithout his fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary
Frustration of Purpose
Applies to a situation in which circumstances arise that destroy the value of the other person’s performance
Ex: Renting a room to overlook a coronation ceremony
Defendant was able to get out of the contract when the ceremony was cancelled because the purpose of the contract had been frustrated / had no reason to be there anymore
Party asserting frustration of purpose defense needs to show:
An unexpected or important event
The event is NOT his fault
The risk has NOT been allocated to him
The event has to almost completely devalue or destroy the performance
R § 265: Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render a performance are discharged, unless the language or the circumstances indicate the contrary
Contract liability is STRICT liability
The obligor is therefore liable in damages for the breach of a contract, even if he or she is without fault and even if circumstances have made the contract more burdensome or less desirable than anticipated
A court may grant relief where extraordinary circumstances may make performance so vitally different from what was reasonably to be expected as to alter the essential nature of the performance
P and D entered into contract, making P a dealer of D’s goods in Michigan city
During economic downturn, D sold its farm equipment division to competitor Case
Case did not offer P a renewed franchise agreement, leaving P w/out a supplier
P sued D for breach
D claimed its performance was excused due to impracticability b/c of rescission & frustration of purpose cause D could make no profit from it
ISSUE
Will a party’s performance be excused where the occurrence of a foreseeable event such as a market downturn renders the contract unprofitable?
HELD
Since market changes are the normal risks of a contract to which the parties are assumed to have considered beforehand, a contract will not be canceled for impracticability or frustration or purpose because market conditions have changed
Basic assumption of the contract→ Robust market / mutual profitability was NOT the basic assumption-> to make a dealer relationship was
The basic purpose of every contract is to make a profit!
Neither market shifts nor financial inability of one of the parties change the basic assumption to the contract such that it may be excused
Risk allocated→ Contract ascribed risk to D by specifying how to terminate the contract, and IH did not take that route / instead unilaterally terminated the contract
Mel Frank Tool & Supply, Inc. v. Di-Chem Co.
(NO Frust. of Purpose, Even if Less Valuable / Profitable)
FACTS
D, a chemical distributor, negotiated w/ P to lease a storage and distribution facility for 3 yrs
D later told by city that recently enacted ordinance prohibited D’s storage of hazardous chemicals there
Did the City’s acts substantially frustrate D’s principal purpose of storing and distributing hazardous chemicals, thus completely devaluing performance?
HELD
A tenant is not relieved from the obligation to pay rent due to a subsequent governmental regulation which prohibits the tenant from legally using the premises for its originally intended purpose if:
There is a serviceable use still available consistent with the use provision in the lease and
Not ALL of D’s inventory was hazardous / can still store other chemicals it produces
No term in the lease that limited storage to just hazardous chemicals
The fact that the use of the premises is less valuable or even unprofitable does not necessarily mean the tenant’s use has been substantially frustrated
D did not establish that its principal purpose for leasing the facility, storing and distributing chemicals, was substantially frustrated by the city’s actions
