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

2. Next day  The Contractual Measure of Damages Scott 93-107, 863-80 Rest. §§ 344, 346-48, 352-53 2

3. Blurring the timing question  After the contract is made Restatement § 261: Impracticability Restatement § 265: Frustration 3

4. Blurring the timing question  Before the contract is made Restatement § 266(1): Impracticability Restatement § 266(2): Frustration Restatement § 152-53: Mistake 4

5. The Restatement understanding 5 Time Formation of Contract Mistake Impracticability Frustration Impracticability Frustration Cf. Restatement § 152, comment b

6. Frustration vs. Impracticability  So what’s the difference? 6

7. Impracticability  Restatement § 261  Death or Incapacity of a person: 262  Res extincta etc.: 263  Govt reg: 264 7

8. Impracticability: An economic focus  Teitelbam at 773: “focus on greatly increased costs”  Traynor at 787: expected value of performance is destroyed 8

9. Frustration  Frustration: Restatement § 265  Illustration 3: Res extincta: Hotel destroyed  Illustration 4: Govt reg 9

10. Frustration: A psychological focus?  Teitelbaum at 773: “focuses on a party’s severe disappointment caused by circumstances that frustrate his purpose in entering into the contract”  Traynor at 787: performance is vitally different from what was expected 10

11. Impracticability vs. Frustration Who are the parties?  Impracticabilty: focus is on provider of goods or services, where performance is impossible or vastly more expenses  Frustration: focus is on buyer of goods or services 11

12. Frustration: Krell v. Henry 781 12

13. Frustration: Krell v. Henry 781 13 56 Pall Mall

14. Frustration: Krell v. Henry  What was the amount of the license? 14

15. Frustration: Krell v. Henry  What was the amount of the license? About $400 for two days. 15

16. Frustration: Krell v. Henry  Was performance of the license impossible, in the sense of Taylor v. Caldwell? 16

17. 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? 17

18. Frustration: Krell v. Henry  Was performance of the license impossible, in the sense of Taylor v. Caldwell? Is this a suitable case “to flush The Moorcock”? 18

19. Frustration: Krell v. Henry  Suppose the agreement had been for a one-month lease and not a two day licence? Is Paradine still good law? 19

20. Frustration: Krell v. Henry  I purchase tickets from a ticket-seller for a play, now in try-outs in New Haven. Subsequently, it is conceded, the play is discovered to be a bomb… 20

21. 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? 21

22. Frustration: Krell v. Henry  I hire a limo to take me to opening day in Baltimore. That morning I learn that the game is rained out. I cancel the limo. 22

23. 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” 23

24. 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. 3 and 4 24

25. Frustration: Krell v. Henry  Is the reliance on parol evidence problematical in frustration cases? 25

26. Frustration: Krell v. Henry  Is the reliance on parol evidence problematical in frustration cases? Suppose that the written contract had stipulated that the premises were let for the purpose of “viewing parades.”  Could one admit parol evidence to show that it was for a particular parade? 26

27. Frustration: Krell v. Henry  Did the Π assume or anticipate the risk?  Who should bear the risk? 27

28. 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? 28

29. Frustration: Krell v. Henry  Who should bear the risk? If no one, why is frustration better than flipping a coin? 29

30. Frustration: Krell v. Henry  Who should bear the risk? If the parties had thought of it, why might they have preferred to make the contract conditional on the coronation rather than assigning the risk after flipping a coin? 30

31. Frustration: Krell v. Henry  Who should bear the risk? Why wouldn’t the property owner want to take the risk? 31

32. Frustration: Krell v. Henry  Who should bear the risk? And what’s wrong with assigning the risk to the spectator?  Note that the owner did not incur reliance expenses. 32

33. Lloyd v. Murphy 785 33 American Academy of Motion Pictures, Wilshire and Almont, Beverly Hills CA 10 blocks from Rodeo Drive

34. Lloyd v. Murphy  Is this a simple application of Paradine? 34

35. Lloyd v. Murphy  Is this a simple application of Paradine? “The consequences of applying the doctrine of frustration to a leasehold involving less than a total or nearly total destruction of the value…”  “Litigation would be encouraged…” 35

36. Lloyd v. Murphy  Does it matter that this was a lease? “No case…” p.789 36

37. Lloyd v. Murphy  Was the restriction to new car sales a nearly total destruction of the purpose? 37

38. Lloyd v. Murphy  Was the restriction to new car sales nearly total destruction of the purpose? Given the waiver… “It was just the location…” 38

39. Lloyd v. Murphy  Who is in the best position to assume the risk? 39

40. Lloyd v. Murphy  Should the defendants on August 4, 1941 have anticipated Pearl Harbor? 40 “Why didn’t I think of that!”

41. 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” 41

42. Common Purpose Requirement  Edwards p. 791 Why might this make sense? 42

43. Common Purpose Requirement  Krug International at 791 43

44. Common Purpose Requirement  Is this consistent with Mayer at 789 Does it matter if the seller knew of the plaintiff’s tax plans? 44

45. Common Purpose Requirement  Edwards p. 791 Can you apply this to Krell v. Henry? 45

46. Change in Government Regulations  Restatement § 264 46

47. Change in Government Regulations: Atlas 745 47 Atlas Corp. uranium “tailings” pile

48. Changes in Government Regulations 48  Consumers Power 790

49. Changes in Government Regulations  Goshie Farms p. 790 49

50. Substantiality Requirement  Cf. Restatement 152 on mistake “material effect on the agreed exchanges”  Should this be implied in frustration cases? Haas p. 791 50

51. Substantiality Requirement  What purpose does a substantiality requirement serve? 51

52. Alabama Football  Qu. Future obligations  Qu. The bonus 52