George Mason School of Law Contracts II Frustration

George Mason School of Law Contracts II Frustration F. H. Buckley fbuckley@gmu. edu 1

Frustration vs. Impracticability o Frustration is the older doctrine, impracticability the newer one o How to tell them apart—or does it matter? 2

Frustration vs. Impracticability o Both might be invoked for events before or after formation 3

Frustration: Before or After n Restatement 266(2): Where, at the time a contract is made, a party’s principal purpose is substantially frustrated n Restatement 265: “Where, after a contract is made, a party’s principal purpose is substantially frustrated 4

Impracticability: Before or After n Restatement 266(1): Where, at the time a contract is made, a party’s performance under it is impracticable n Restatement 261: “Where, after a contract is made, a party’s performance is made impracticable 5

The Restatement understanding Formation of Contract Mistake Impracticability Frustration Time 6

Frustration vs. Impracticability o Is there a difference in scope? 7

Examples of Impracticability o Death or Incapacity of a person: 262 o Res extincta etc. : 263 o Govt reg: 264 8

Examples of Frustration o Restatement § 265 o Illustration 3: Res extincta: Hotel destroyed o Illustration 4: Govt reg 9

Impracticability: An economic focus o Teitelbam in Alcoa: “focus on greatly increased costs” o Traynor in Lloyd v Murphy: expected value of performance is destroyed 10

Frustration: A psychological focus? o Teitelbaum: “focuses on a party’s severe disappointment caused by circumstances that frustrate his purpose in entering into the contract” o Traynor: extreme hardship, value of performance destroyed 11

Impracticability vs. Frustration Who are the parties? o Frustration: focus is on consumer of goods or services o Impracticabilty: focus is on provider of goods or services, where performance is impossible or vastly more expenses 12

Impracticability vs. Frustration Who are the parties? o Frustration focuses on consumers? n Taylor v. Caldwell (Surrey Gardens) n Krell v. Henry 13

Impracticability vs. Frustration Who are the parties? o Impracticabilty focuses on providers? n Howell v. Coupland n Aluminum v. Essex 14

Frustration: Krell v. Henry 760 15

Frustration: Krell v. Henry 56 Pall Mall 16

Frustration: Krell v. Henry o What was the amount of the license? 17

Frustration: Krell v. Henry o What was the amount of the license? n About $400 for two days. 18

Frustration: Krell v. Henry o Was performance of the license impossible, in the sense of Taylor v. Caldwell? 19

Frustration: Krell v. Henry o Was performance of the license impossible, in the sense of Taylor v. Caldwell? n Was the purpose to take the room for two days, or to take the room to see the Coronation procession? 20

Frustration: Krell v. Henry o Suppose the agreement had been for a one-month lease and not a two day license? 21

Frustration: Krell v. Henry o Suppose the agreement had been for a one-month lease and not a two day license? n Is Paradine still good law? 22

Frustration: Krell v. Henry o I am a promoter and hire a hall for a musical show. On the date of the show a prominent politician dies and I cancel the show. Do I have to pay for the hall? 23

Frustration: Krell v. Henry o I hire a limo to take me to Baltimore, telling the driver I want to see the Orioles’ opening day. That morning I learn that the game is rained out. I cancel the limo. 24

Frustration: Krell v. Henry o I purchase tickets from a ticket-seller for a New York play, now in try-outs in New Haven. Subsequently, it is conceded, the play is discovered to be a bomb… 25

Frustration: Krell v. Henry o A builder undertakes to build a house but discovers that the land is unsuitable for a building. n Stees and “Work before pay” 26

Frustration: Krell v. Henry o A builder undertakes to build a house but discovers that the land is unsuitable for a building. n Cf. Restatement 263, illus. 4 27

Frustration: Krell v. Henry o Who should bear the risk of the King’s illness? 28

Frustration: Krell v. Henry o Who should bear the risk? n Who was in the best position to predict that the King would come down with appendicitis? 29

Frustration: Krell v. Henry o Who should bear the risk? n What’s wrong with applying Paradine and assigning the risk to the spectator? 30

Frustration: Krell v. Henry o Who should bear the risk? n What’s wrong with applying Paradine and assigning the risk to the spectator? n Why might the spectator argue that this would amount to a windfall for the owner? 31

Lloyd v. Murphy 763 Wilshire Bvld. at Santa Monica, 1940 32

Lloyd v. Murphy 33 Wilshire Bvld. at Almont, 1940

Lloyd v. Murphy American Academy of Motion Pictures, Wilshire and Almont, Beverly Hills CA 34

Lloyd v. Murphy o Does it matter that this was a lease? 35

Lloyd v. Murphy o Does it matter that this was a lease? n � Williston at 765 n “No case…” p. 767 36

Lloyd v. Murphy o “The consequences of applying the doctrine of frustration to a leasehold involving less than a total or nearly total destruction of the value… would be undesirable” o “Litigation would be encouraged…” 37

Lloyd v. Murphy o Was the restriction to new car sales a nearly total destruction of the purpose? 38

Lloyd v. Murphy o Was the restriction to new car sales nearly total destruction of the purpose? n Given the waiver… n “It was just the location…” 39

Lloyd v. Murphy o Who is in the best position to assume the risk? 40

Lloyd v. Murphy o Should the defendants on August 4, 1941 have anticipated Pearl Harbor? 41

Lloyd v. Murphy o Should the defendants on August 4, 1941 have anticipated Pearl Harbor? n “It cannot be said the risk of war was so remote a contingency” o Surprise attack? What surprise? 42

Lloyd v. Murphy o Should the defendants on August 4, 1941 have anticipated Pearl Harbor? n “It cannot be said the risk of war was so remote a contingency“ n 1940 National Defense Act and Detroit’s response 43

Common Purpose Requirement o Edwards p. 771 n Why might this make sense? 44

Common Purpose Requirement o Krug International at 771 45

Common Purpose Requirement o An information-forcing rule? 46

Change in Government Regulations o Restatement § 264 47

Change in Government Regulations: Atlas 724 Atlas Corp. uranium “tailings” pile 48

Changes in Government Regulations o Goshie Farms p. 768 49

Substantiality Requirement o Cf. Restatement 152 on mistake n “material effect on the agreed exchanges” o Should this be implied in frustration cases? n Haas p. 770 50