Excused Performance

AuthorFranklin G. Snyder, Mark Edwin Burge
Unit 22
Part Two
Excused Performance
When Bad Things Happen to Good Contracts. By this point, you should
understand that if a party has a duty under a valid contract and fails to perform the
contract in a satisfactory manner, the contracting party is liable for breach. But what
happens if a party’s failure to perform is caused by something totally beyond its
control? Suppose, for example, you agree to lease a house for a year to a tenant, and
the day before she moves in a tornado destroys the house. Are you liable for breach
of your contract with the tenant? On the other hand, is she liable to you for the rent
even though the place has been destroyed?
Original Strict-Liability Standard. The common law has struggled with and
changed its position on these questions over the years. Originally, contracts were
strict-liability undertakings. If a party failed to perform for any reason, then he was
liable for breach. Thus, in the famous English case of Paradine v. Jane, 82 Eng. Rep.
897 (K.B. 1647), a tenant had rented an estate. Subsequently, he was forcibly evicted
from the estate by Royalist troops during the English Civil War, who kept him out of
possession for nearly two years. The tenant refused to pay rent to the owner because
the tenant could not have possession, making the contract worthless to him. The court
held, nonetheless, that the tenant was obliged to pay the full rent, and would have
had to do so even if the whole place had burned down or been swallowed by the sea.
This strict-liability doctrine, howev er, began to change in the middle of the
nineteenth century. By the early part of the twentieth century, two English cases
establishing doctrines of excused performance had become highly influential in the
United States.
Origin of “Impossibility of Performance” as an Excuse. The first of these two
cases was Taylor v. Caldwell, 122 Eng. Rep. 309 (1863), in which a concert promoter
had hired a venue called the Surrey Gardens for a major te. Unfortunately, the
Gardens were totally destroyed by fire shortly before the event was to take place. The
promoter sued on the ground that the owners were in breach for failing to provide the
venue. Under Paradine v. Jane, this argument looked like a winner. Yet the court
held for the owners. It relied on some earlier cases that held when a horse died or a
ship sank, a contract for the item’s sale was automatically canceled because the
subject of the contract no longer existed. The court reasoned that that the existence
of the Gardens as a venue was a basic condition under which the contract was formed.
Thus, because destruction of the Gardens made it “impossible” to perform, the owners
were excused from performance.
Origin of “Frustration of Purpose” as an Excuse. The second case, Krell v.
Henry, [1903] 2 KB 740, involved the biggest public spectacle of its day, the coronation
of King Edward VII in 1902. Krell was the owner of a flat on Pall Mall in London,
which was directly on the coronation route and would provide excellent viewing of the
festivities. Henry rented the flat from Krell for the dates of June 26-27, 1902, paying
an amount greatly in excess of the flat’s ordinary rental rate. The problem was that
the new King got sick and the whole event was canceled and rescheduled for August,
which meant that Henry did not need the rooms. He refused to pay the bulk of the
rental, and Krell sued. Relying on The Moorcock (discussed in our previous unit on
implied terms) for the proposition that terms could be implied into contracts, and on
Taylor v. Caldwell, the court held that Henry was excused from performance. A basic
assumption of both contracting parties was that the coronation parade would be held;
there would have otherwise been no contract. When the parade was canceled, Henry’s
entire purpose for entering into the contract was frustrated.
Modern Excuses from Performance. Note the distinction between Taylor and
Krell. In a sense, they are two sides of the same coin. The argument in Taylor was
that the party could not performthe Surrey Gardens hall was destroyed. The
argument in Krell was that while the party could perform, there was no longer any
reason to do so. These two concepts exist today in American contract law as the
doctrines of “impracticability of performance”—originally and still sometimes called
“impossibility of performance”—and “frustration of purpose.”
As you read the following materials and work through the problems, you may
want to consult the fairly extensive set of impracticability and frustration rules found
in sections 261 through 272 of the Restatement (Second) of Contracts. The core
section on impracticability of performance is section 261, while the core section on
frustration of purpose is section 265.

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