Impossible!
Prof. Merges – Contracts
April 25, 2011
Tomorrow’s assignment
• Swift Canadian – page 858,
not page 834
Stees v. Leonard
• “Pacta sunt servanda”
• The K must be served (or honored)
• Risk of “latent defects” must fall on the
contractor
§ 152. When Mistake Of Both
Parties Makes A Contract
Voidable
(1) Where a mistake of both parties at the
time a contract was made as to a basic
assumption on which the contract was
made has a material effect on the
agreed exchange of performances, the
contract is voidable by the adversely
affected party unless he bears the risk
of the mistake under the rule stated in
§ 154.
(2) In determining whether the mistake
has a material effect on the agreed
exchange of performances, account is
taken of any relief by way of
reformation, restitution, or otherwise.
[M]arket conditions and the financial
situation of the parties are ordinarily
not such assumptions, and, generally,
just as shifts in market conditions or
financial ability do not effect discharge
under the rules governing
impracticability, mistakes as to market
conditions or financial ability do not
justify avoidance under the rules
governing mistake.
Illustration 1
A contracts to sell and B to buy a tract of
land, the value of which has depended
mainly on the timber on it. Both A and
B believe that the timber is still there,
but in fact it has been destroyed by fire.
The contract is voidable by B.
Why doesn’t financial situation
of the parties count as “basic”?
§ 154. When A Party Bears The
Risk Of A Mistake
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the
parties, or
(b) he is aware, at the time the contract is made, that he
has only limited knowledge with respect to the facts
to which the mistake relates but treats his limited
knowledge as sufficient, or
(c) the risk is allocated to him by the court on the
ground that it is reasonable in the circumstances to
do so.
The seller of farm land generally cannot
avoid the contract of sale upon later
discovery by both parties that the land
contains valuable mineral deposits,
even though the price was negotiated
on the basic assumption that the land
was suitable only for farming and the
effect on the agreed exchange of
performances is material. In such a
case a court will ordinarily allocate the
risk of the mistake to the seller, so that
he is under a duty to perform
regardless of the mistake.
Least cost avoider: expertise
5. A contracts with B to build a house on
B's land. A and B believe that subsoil
conditions are normal, but in fact some
of the land must be drained at an
expense that will leave A no profit
under the contract. The contract is not
voidable by A, because the court will
allocate to A the risk of the mistake.
Quitclaim deed example
R2 154, ill. 1. A contracts to sell and B to
buy a tract of land. A and B both
believe that A has good title, but
neither has made a title search. The
contract provides that A will convey
only such title as he has, and A makes
no representation with respect to title.
In fact, A's title is defective. The
contract is not voidable by B, because
the risk of the mistake is allocated to B
by agreement of the parties.
Watkins & Son v. Carrig
• P. 821, Intro to Section 2.
• Expertise of cellar excavator means
that party bears the risk of problems
2 Fabled Cases
• Wood v. Boynton, “the diamond in the
rough”
• Sherwood v. Walker, “the pregnant cow
case”
Wood v Boynton
• Not a mistake in the thing
delivered – it was the stone the
parties had contracted for
• No rescission of the K based
on mutual mistake
Wood
• Notice: this particular jeweler credibly
testified that he did not know the value
of the stone
• Both parties understood that the
transaction involved the same stone:
no mistake about the existence or
identity of the stone
I was a
mistake!
Sherwood v. Walker
• Both parties assumed the cow
was sterile; both were mistaken
• “Different cow” or “same cow,
just a disagreement about
qualities or features
Reconciling Wood and
Sherwood
• Price/value ratios very different in the 2
cases
• Cow in Sherwood priced so as to show
basic assumption (sterile)
• Not so in Wood: fair price for value of
unknown type of stone
Impossibility - themes
• History – Taylor
• Drafting
• UCC Impracticability
History
• Paradyne v. Jane, 1647
• Cromwell’s army and pacta sunt
servanda
 Absolute rule . . .
Taylor v. Caldwell
Charles Spurgeon, 1834-1892
June, 1857: the big fire
Taylor v. Caldwell
• Facts
• History
What damages did Taylor seek?
What damages did Taylor seek?
• Reliance, it looks like
• Why not expectation?
 Fera, “new business rule”
Taylor v. Caldwell
• Not a lease – relevance?
Taylor v. Caldwell
• Not a lease – relevance?
 Paradyne and property principles
“without fault of either party”
• What if head of Surrey Gardens had
championed a successful law to
prevent musical performances on
Sundays?
Did the parties contemplate the
event that occurred?
“The parties when framing the agreement
evidently had not present to their
minds the possibility of such a
disaster, and have made no express
stiplation with reference to it . . .”
Did the parties contemplate the
event that occurred?
• Apparently not
• How would it be relevant if they had?
“Positive K to do a thing”
K “to do a thing” is “positive and
absolute”
“Positive K to do a thing”
K “to do a thing” is “positive and
absolute”
 E.g., K to build a dance hall; no excuse
if it burns down or proves impossible
to build on that site
“Duty” vs. “condition”
• Did party agree to do something, or
was that something an assumed
condition of what party actually agreed
to do?
Did the parties contemplate the
event that occurred?
• Apparently not
• How would it be relevant if they had?
 Could be a basic assumption then; a
contingency “asked and answered”;
allocation of risk idea -- ?
Roman sources
• The “romance” of the Latin civilians
• Justinian’s code, and the Digests
Watson (ed.), The Digest of Justinian
[revised English-language edition]
(Philadelphia, PA: University of
Pennsylvania Press, 1998), 2 vols. ISBN
0-8122-1636-9.
Emperor 527-565
The Digest was assembled by a team of
sixteen academic lawyers commissioned
by Justinian in 533 to cull everything of
value from earlier Roman law. It was for
centuries the focal point of legal education
in the West and remains today an
unprecedented collection of the
commentraries of Roman jurists on the
civil law.
Bailments
• “implied condition” analysis
• Risk of loss in lent, borrowed, stored,
and pledged assets
• Continued existence of asset is an
assumption of the parties
§ 261. Discharge By
Supervening Impracticability
Where, after a contract is made, a party's
performance is made impracticable
without his fault by the occurrence of
an event the non-occurrence of which
was a basic assumption on which the
contract was made, his duty to render
that performance is discharged, unless
the language or the circumstances
indicate the contrary.
Illustration 1
On June 1, A agrees to sell and B to buy goods
to be delivered in October at a designated
port. The port is subsequently closed by
quarantine regulations during the entire
month of October, no commercially
reasonable substitute performance is
available (see Uniform Commercial Code §
2- 614(1)), and A fails to deliver the goods.
A's duty to deliver the goods is discharged,
and A is not liable to B for breach of
contract.
2. A contracts to produce a movie for B. As B knows,
A's only source of funds is a $100,000 deposit in C
bank. C bank fails, and A does not produce the
movie. A's duty to produce the movie is not
discharged, and A is liable to B for breach of
contract.
3. A and B make a contract under which B is to work
for A for two years at a salary of $50,000 a year. At
the end of one year, A discontinues his business
because governmental regulations have made it
unprofitable and fires B. A's duty to employ B is not
discharged, and A is liable to B for breach of
contract.
4. A contracts to sell and B to buy a specific machine
owned by A to be delivered on July 30. On July 29,
as a result of a creditor's suit against A, a receiver is
appointed and takes charge of all of A's assets, and
A does not deliver the goods on July 30. A's duty to
deliver the goods is not discharged, and A is liable
to B for breach of contract.
Force Majeure Clauses
General rule
• If parties say “seller is not liable and K
terminates” in event of a strike, what
happens if strike occurs?
Difficult cases
• Where event that occurred is similar to
one of the itemized “excuse events”
• Where clause has “general and openended” language after laundry list of
specifics
Ejusdem generis
“of the same kind”
If a statute refers to automobiles, trucks,
tractors, motorcycles and other motorpowered vehicles, "vehicles" would not
include airplanes, since the list was of
land-based transportation.
Kamma Rippa Music case
• How could clause have been
improved?
Kamma Rippa Music case
• How could clause have been
improved?
 Could have said “including but not
limited to” the listed events
Eastern Airlines v. Gulf
• c
Trivia Question
• When did we last see these slides?
Trivia Question
• When did we last see these slides?
• September 6.
Eastern Airlines v. Gulf
• Facts
• History
§ 2-614. Substituted
Performance
(1) If without fault of either party the agreed berthing,
loading, or unloading facilities fail or an agreed type
of carrier becomes unavailable or the agreed manner
of performance otherwise becomes commercially
impracticable but a commercially reasonable
substitute is available, the substitute performance
must be tendered and accepted.
(2) If the agreed means or manner of payment fails
because of domestic or foreign governmental
regulation, the seller may withhold or stop delivery
unless the buyer provides a means or manner of
payment which is commercially a substantial
equivalent. If delivery has already been taken,
payment by the means or in the manner provided by
the regulation discharges the buyer's obligation
unless the regulation is discriminatory, oppressive,
or predatory.
§ 2-615. Excuse By Failure Of
Presupposed Conditions
Except to the extent that a seller may have assumed a
greater obligation and subject to Section 2-614:
(a) Delay in performance or nonperformance in whole or in
part by a seller that complies with paragraphs (b) and (c)
is not a breach of the seller's duty under a contract for
sale if performance as agreed has been made
impracticable by the occurrence of a contingency the
nonoccurrence of which was a basic assumption on
which the contract was made or by compliance in good
faith with any applicable foreign or domestic
governmental regulation or order whether or not it later
proves to be invalid.
(b) If the causes mentioned in paragraph (a) affect only
a part of the seller's capacity to perform, the seller
must allocate production and deliveries among its
customers but may at its option include regular
customers not then under contract as well as its own
requirements for further manufacture. The seller may
so allocate in any manner that is fair and reasonable.
(c) The seller must notify the buyer seasonably that
there will be delay or nonperformance and, if
allocation is required under paragraph (b), of the
estimated quota thus made available for the buyer.