Lecture Notes: Excuse Doctrines in Contract Law

Introduction

• Excuse doctrines allow parties to avoid liability for breach of contract if unforeseen events alter the contract’s terms fundamentally.
• Focus on two doctrines: Impracticability and Frustration of Purpose.

Doctrine of Impracticability

• Originated from the older doctrine of Impossibility of Performance.
  • Example: Taylor v. Caldwell (1863) - Concert venue burned down, excusing the landlord from breach of contract.
• Impracticability considers situations where performance is possible but extremely difficult or different from original expectations.
• Legal references:
  • Restatement (Second) of Contracts, Section 261
  • Uniform Commercial Code, Section 2-615

Key Elements of Impracticability (Section 261)

• Contractual obligations are made impracticable due to unforeseen events.
• The event’s non-occurrence was a basic assumption of the contract.
• The situation is not due to the party's fault.

Doctrine of Frustration of Purpose

• Example: Crell v. Henry (1903) - Coronation parade canceled, excusing the renter from the contract for a parade-viewing spot.
• The contract’s purpose becomes frustrated without fault by an unforeseen event.
• Legal reference: Restatement (Second) of Contracts, Section 265

Case Study: Carl Wendt Farm Equipment Company v. International Harvester Company

• Background: International Harvester sold its farm equipment division assets, excluding franchise networks.
• Carl Wendt Farm Equipment Company was left without products to sell.

Trial and Appeals

• Impracticability Defense:
  • Claimed economic downturn as excusable impracticability.
  • Losses: $2 million/day, drop in Fortune 500 ranking.
  • Court's decision: Economic downturn and business decisions do not justify impracticability.
• Frustration of Purpose Defense:
  • Claimed unprofitability frustrated the contract’s purpose.
  • Court's decision: Market conditions and financial status were not basic assumptions warranting excuse.

Learnings from the Case

• Impracticability and frustration defenses must involve unforeseen, external events.
• Changes in profitability or market conditions alone do not satisfy these defenses.
• Parties cannot create their own excuses by internal business decisions.

Comments on Restatement Sections

• Section 261 (Impracticability) & Section 265 (Frustration of Purpose):
  • The non-occurrence of the event must be a basic contract assumption.
  • Parties must account for some level of uncertainty in market conditions.
  • Financial challenges do not typically meet these doctrines’ criteria.

Conclusion

• Both excuse doctrines require objective unforeseen circumstances.
• The next lesson will explore limits of these excuse doctrines.