1

George Mason School of Law

Contracts II

Frustration

F.H. Buckley

fbuckley@gmu.edu

Lost volume seller?

2

Frustration vs. Impracticability

Frustration is the older doctrine, impracticability the newer one

How to tell them apart—or does it matter?

3

Frustration vs. Impracticability

Both might be invoked for events before or after formation

4

Frustration: Before or After

5

Restatement 266(2): Where, at the time a contract is made, a party’s principal purpose is substantially frustrated

Restatement 265: “Where, after a contract is made, a party’s principal purpose is substantially frustrated

Impracticability: Before or After

6

Restatement 266(1): Where, at the time a contract is made, a party’s performance under it is impracticable

Restatement 261: “Where, after a contract is made, a party’s performance is made impracticable

The Restatement understanding

7

Time

Formation of Contract

MistakeImpracticabilityFrustration

ImpracticabilityFrustration

Frustration vs. Impracticability

Is there a difference in scope?

8

Examples of Impracticability

Death or Incapacity of a person: 262

Res extincta etc.: 263

Govt reg: 264

9

Examples of Frustration

Restatement § 265 Illustration 3: Res extincta: Hotel

destroyed Illustration 4: Govt reg

10

Impracticability: An economic focus

Teitelbam: “focus on greatly increased costs”

Traynor: expected value of performance is destroyed

11

Frustration:A psychological focus?

Teitelbaum: “focuses on a party’s severe disappointment caused by circumstances that frustrate his purpose in entering into the contract”

Traynor: performance is vitally different from what was expected

12

Impracticability vs. FrustrationWho are the parties?

Frustration: focus is on consumer of goods or services

Impracticabilty: focus is on provider of goods or services, where performance is impossible or vastly more expenses

13

Impracticability vs. FrustrationWho are the parties?

Frustration focuses on consumers? Taylor v. Caldwell Krell v. Henry

14

Impracticability vs. FrustrationWho are the parties?

Impracticabilty focuses on providers? Howell v. Coupland Aluminum v. Essex

15

Frustration: Krell v. Henry 760

16

Frustration: Krell v. Henry

17

56 Pall Mall

Frustration: Krell v. Henry

What was the amount of the license?

18

Frustration: Krell v. Henry

What was the amount of the license? About $400 for two days.

19

Frustration: Krell v. Henry

Was performance of the license impossible, in the sense of Taylor v. Caldwell?

20

Frustration: Krell v. Henry

Was performance of the license impossible, in the sense of Taylor v. Caldwell? Was the purpose to take the room for

two days, or to take the room to see the Coronation procession?

21

Frustration: Krell v. Henry

Suppose the agreement had been for a one-month lease and not a two day license?

22

Frustration: Krell v. Henry

Suppose the agreement had been for a one-month lease and not a two day license? Is Paradine still good law?

23

Frustration: Krell v. Henry

Why do you think the spectator did not seek the return of his deposit?

24

Frustration: Krell v. Henry

Why do you think the spectator did not seek the return of his deposit? Is Stubbs v. Holywell on point?

25

Frustration: Krell v. Henry

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?

26

Frustration: Krell v. Henry

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.

27

Frustration: Krell v. Henry

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…

28

Frustration: Krell v. Henry

A builder undertakes to build a house but discovers that the land is unsuitable for a building. Stees and “Work before pay”

29

Frustration: Krell v. Henry

A builder undertakes to build a house but discovers that the land is unsuitable for a building. Cf. Restatement 263, illus. 4

30

Frustration: Krell v. Henry

Who should bear the risk of the King’s illness?

31

Frustration: Krell v. Henry

Who should bear the risk? Who was in the best position to predict

that the King would come down with appendicitis?

32

Frustration: Krell v. Henry

Who should bear the risk? What’s wrong with applying Paradine and

assigning the risk to the spectator?

33

Frustration: Krell v. Henry

Who should bear the risk? What’s wrong with applying Paradine and

assigning the risk to the spectator? Why might the spectator argue that this

would amount to a windfall for the owner?

34

Lloyd v. Murphy 763

35

Wilshire Bvld. at Santa Monica, 1940

Lloyd v. Murphy 785

36

Wilshire Bvld. at Almont, 1940

Lloyd v. Murphy 785

37

American Academy of Motion Pictures, Wilshire and Almont, Beverly Hills CA

Lloyd v. Murphy

Does it matter that this was a lease?

38

Lloyd v. Murphy

Does it matter that this was a lease? Williston at 765 “No case…” p.767

39

Lloyd v. Murphy

“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”

“Litigation would be encouraged…”

40

Lloyd v. Murphy

Was the restriction to new car sales a nearly total destruction of the purpose?

41

Lloyd v. Murphy

Was the restriction to new car sales nearly total destruction of the purpose? Given the waiver… “It was just the location…”

42

Lloyd v. Murphy

Who is in the best position to assume the risk?

43

Lloyd v. Murphy

Should the defendants on August 4, 1941 have anticipated Pearl Harbor?

44

Lloyd v. Murphy

Should the defendants on August 4, 1941 have anticipated Pearl Harbor? “It cannot be said the risk of war was so

remote a contingency” Surprise attack? What surprise?

45

Lloyd v. Murphy

Should the defendants on August 4, 1941 have anticipated Pearl Harbor? “It cannot be said the risk of war was so

remote a contingency“ 1940 National Defense Act and Detroit’s

response

46

Common Purpose Requirement

Edwards p. 771 Why might this make sense?

47

Common Purpose Requirement

Krug International at 771

48

Common Purpose Requirement

Is this consistent with Mayer at 768 Does it matter if the seller knew of the

plaintiff’s tax plans?

49

Change in Government Regulations

Restatement § 264

50

Change in Government Regulations: Atlas 724

51

Atlas Corp. uranium “tailings” pile

Changes in Government Regulations

52

Consumers Power 768

Changes in Government Regulations

Goshie Farms p. 768

53

Substantiality Requirement

Cf. Restatement 152 on mistake “material effect on the agreed exchanges

”

Should this be implied in frustration cases? Haas p. 770

54