Excused Performance

• Author: Franklin G. Snyder, Mark Edwin Burge
• Pages: 451-474

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UNIT 22: EXCUSED PERFORMANCE 451

Unit 22

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PERFORMANCE AND BREACH

Part Two

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Excused Performance

FOCUS OF THIS UNIT

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 fête. 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

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452 CHAPTER VII: PERFORMANCE AND BREACH

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 perform—the 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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