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

2. Lost volume seller? 2

3. Frustration vs. Impracticability  Frustration is the older doctrine, impracticability the newer one  How to tell them apart—or does it matter? 3

4. Frustration vs. Impracticability  Both might be invoked for events before or after formation 4

5. 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

6. 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

7. The Restatement understanding 7 Time Formation of Contract Mistake Impracticability Frustration Impracticability Frustration

8. Frustration vs. Impracticability  Is there a difference in scope? 8

9. Examples of Impracticability  Death or Incapacity of a person: 262  Res extincta etc.: 263  Govt reg: 264 9

10. Examples of Frustration  Restatement § 265  Illustration 3: Res extincta: Hotel destroyed  Illustration 4: Govt reg 10

11. Impracticability: An economic focus  Teitelbam: “focus on greatly increased costs”  Traynor: expected value of performance is destroyed 11

12. 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

13. Impracticability vs. Frustration Who 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

14. Impracticability vs. Frustration Who are the parties?  Frustration focuses on consumers? Taylor v. Caldwell Krell v. Henry 14

15. Impracticability vs. Frustration Who are the parties?  Impracticabilty focuses on providers? Howell v. Coupland Aluminum v. Essex 15

16. Frustration: Krell v. Henry 760 16

17. Frustration: Krell v. Henry 17 56 Pall Mall

18. Frustration: Krell v. Henry  What was the amount of the license? 18

19. Frustration: Krell v. Henry  What was the amount of the license? About $400 for two days. 19

20. Frustration: Krell v. Henry  Was performance of the license impossible, in the sense of Taylor v. Caldwell? 20

21. 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

22. Frustration: Krell v. Henry  Suppose the agreement had been for a one-month lease and not a two day license? 22

23. 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

24. Frustration: Krell v. Henry  Why do you think the spectator did not seek the return of his deposit? 24

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. Frustration: Krell v. Henry  Who should bear the risk of the King’s illness? 31

32. 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

33. Frustration: Krell v. Henry  Who should bear the risk? What’s wrong with applying Paradine and assigning the risk to the spectator? 33

34. 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

35. Lloyd v. Murphy 763 35 Wilshire Bvld. at Santa Monica, 1940

36. Lloyd v. Murphy 785 36 Wilshire Bvld. at Almont, 1940

37. Lloyd v. Murphy 785 37 American Academy of Motion Pictures, Wilshire and Almont, Beverly Hills CA

38. Lloyd v. Murphy  Does it matter that this was a lease? 38

39. Lloyd v. Murphy  Does it matter that this was a lease? Williston at 765 “No case…” p.767 39

40. 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

41. Lloyd v. Murphy  Was the restriction to new car sales a nearly total destruction of the purpose? 41

42. 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

43. Lloyd v. Murphy  Who is in the best position to assume the risk? 43

44. Lloyd v. Murphy  Should the defendants on August 4, 1941 have anticipated Pearl Harbor? 44

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”  Surprise attack? What surprise? 45

46. 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

47. Common Purpose Requirement  Edwards p. 771 Why might this make sense? 47

48. Common Purpose Requirement  Krug International at 771 48

49. Common Purpose Requirement  Is this consistent with Mayer at 768 Does it matter if the seller knew of the plaintiff’s tax plans? 49

50. Change in Government Regulations  Restatement § 264 50

51. Change in Government Regulations: Atlas 724 51 Atlas Corp. uranium “tailings” pile

52. Changes in Government Regulations 52  Consumers Power 768

53. Changes in Government Regulations  Goshie Farms p. 768 53

54. Substantiality Requirement  Cf. Restatement 152 on mistake “material effect on the agreed exchanges”  Should this be implied in frustration cases? Haas p. 770 54