Chapter 9

Grounds for Excusing Performance

In the last chapter, we saw that a party can cease performance and cancel a contract when, among other things, the other party fails to satisfy an express promissory condition or commits an uncured material breach. Chapter 9 also concerns grounds for releasing a party from the duty to perform a contract, but these new grounds are not based on the other party’s failure to perform. Instead, Chapter 9 focuses on various grounds for excusing a party from performance because both parties have a mistaken view of the facts existing at the time of contracting or, at that time, they reasonably fail to foresee a “supervening” event (an event that takes place after contract formation) that makes performance very different from what they expected. Chapter 9 also covers mistakes by only one party that excuse performance.

Contract law calls an excuse based on both parties’ mistaken view of existing facts a “mutual mistake.” (Surprise!) Recall an example of a mutual mistake from Chapter 1, in which both parties to a sale of jewelry reasonably thought the seller was selling a worthless stone for $1, but the stone turned out to be a diamond worth $50,000.¹ The seller may claim a mutual mistake and seek a return of the diamond.

Contract law labels excuses based on a supervening event either “impossibility,” “impracticability,” or “frustration of purpose” depending on the context. We will discuss examples of each of these excuses shortly.² For now, consider the following example of an impracticability claim: After an international disruption in oil supply causes the price of oil to skyrocket, an oil supplier seeks relief from a long-term, fixed-price contract to supply oil to an electric utility. The oil supplier may claim relief from performance on the basis of impracticability.³

In our discussion of legal excuses, you will see that, although these doctrines introduce new terminology and strategies of analysis, in the end they amount to nothing more than judicial interpretation of a contract to determine whether the parties assigned the risk of the mistake or of the supervening event. If the court concludes the parties did not assign the risk themselves, the court may engage in judicial gap filling. For example, did the parties in the oil supply contract intend to condition the supplier’s performance on the absence of international disruptions? If the parties did not foresee the disruption, should the court construct such a condition for the parties? By keeping in mind what courts are really doing, you may be able to take some of the mystery out of the excuse cases.

As mentioned in Chapter 1, the excuse doctrines are controversial because they allow a party to avoid duties under an otherwise enforceable contract. Obviously, if too generous, the excuse doctrines discourage people from entering contracts or relying on them. For example, what company will want to make or rely on a fixed-price contract to purchase oil if the supplier can avoid the deal simply because the market price goes up? Purchasers of oil enter such contracts precisely because they want to assign the risk of price increases to the supplier. On the other hand, if the supplier must obtain oil at astronomical prices because of an unforeseeable world crisis, relieving the supplier seems more palatable, both on grounds of freedom of contract (arguably, the supplier never agreed to perform under such circumstances) and of fundamental fairness. Further, because circumstances such as world crises disrupting oil supplies are thankfully rare, people can justifiably rely on their contracts secure in the knowledge that the supplier will not easily wiggle out of the deal.

When I wrote the second edition, the “Great Recession” of 2008–09 (what was so great about it?) was just winding down. One of the ramifications of the recession was the pressure it put on government to “rewrite” contracts, for example, in the financial and auto industries. Most of the responses of government were through special legislation and bankruptcy, so, thankfully, we don’t have to focus on the various issues here. But as you read this chapter, think about whether any of the excuse doctrines might have applied.

Now let’s investigate the excuse doctrines more closely.

A. MISTAKE

I would be remiss (and I hate being remiss), if I didn’t begin our discussion of mistake with the famous case of Sherwood v. Walker.⁴ The Walkers contracted to sell a cow named Rose 2d of Aberlone to Sherwood for $80. According to the majority opinion, both parties thought that Rose was barren. Rose turned out to be pregnant and worth at least $750. The Walkers refused to deliver Rose to Sherwood and he sued. The trial court instructed the jury that Rose’s sterility or lack thereof was inconsequential and the jury decided in favor of Sherwood. The Michigan Supreme Court reversed and remanded the case for a new trial. The court stated that the jury should have been instructed that “if they found that the cow was sold, or contracted to be sold, upon the understanding of both parties that she was barren * * * and that in fact she was not barren * * * then [the Walkers] had a right to rescind * * * and the verdict should be in their favor.”⁵

The majority based its holding on the “mutual mistake” excuse: Contract law excuses a party from its contract when the parties are mutually mistaken about a material fact.⁶ Notice how easy it will be for you to remember the elements of the rule. Each element starts with the letter “m.” In order for the Walkers to avoid the contract there must be a mutual, material, mistake. Let’s analyze each of these elements.

1.Mutual

The mistake must be mutual, meaning, of course, that both parties must believe the mistaken assumption.⁷ The jury charge required by the Sherwood majority incorporates the mutuality requirement by directing the jury to find for the Walkers only if both parties believed that Rose was barren. The dissent thought that because Sherwood had seen Rose with a bull, he believed she might not be barren.⁸ If the dissent was correct, Sherwood did not share the Walkers’ mistake and the mistake was not mutual.⁹ The dissent therefore disagreed with the majority’s decision to grant a new trial.

Contract law recognizes some exceptions to the mutuality requirement. Recall in Chapter 6 our discussion of fraudulent concealment.¹⁰ You might wonder, if the dissent is correct on the facts, whether Sherwood had a duty to disclose his view about Rose’s breeding capability and whether the Walkers therefore had a right to rescind for fraudulent concealment. Relief for the Walkers is not likely on this ground because, even under the dissent’s view of the facts, Sherwood only thought that Rose could be made to breed and did not have any hard facts about her condition. Even if Sherwood had such facts, Sherwood probably did not have a disclosure duty because the Walkers, as owners of Rose, reasonably should have ascertained the facts for themselves.¹¹

I don’t mean to suggest that the duty to disclose can never arise in unilateral mistake situations. Consider a variation of the facts of Johnson v. Healy,¹² a case first discussed in Chapter 6.¹³ Suppose Healy sells a new home to Johnson, knowing that the house is defective because of improper fill supporting the foundation.¹⁴ Johnson reasonably does not know about the defect. Healy says nothing about the quality of the home to Johnson. If Johnson claimed a mutual mistake, asserting that both parties mistakenly believed the house’s foundation was solid, he would be unsuccessful. Healy, of course, was not mistaken about the quality of the foundation, so the mistake was not mutual. However, Healy had a duty to disclose the defect and Johnson can avoid the contract on this basis.¹⁵

The case is even stronger for rescission when one party knows or should know of the other party’s mistake.¹⁶ Suppose Healy not only knew that the house had a defective foundation, but also knew or reasonably should have known that Johnson was unaware of the defect. Again, Johnson’s mutual mistake claim would be unsuccessful. Healy was not mistaken about the quality of the foundation, so the mistake was not mutual. However, contract law allows Johnson to rescind the contract because Healy knew or should have known about Johnson’s mistake. One party cannot take advantage of the other’s unilateral mistake.¹⁷

The disclosure duty has been controversial in the context of software licensing. Suppose Company A licenses software to Company B. A knows of a material defect in the software, but does not disclose the defect, thinking that it can supply patches to the software later. B incurs damages when the software fails. Some software vendors have insisted that there is no duty to disclose material bugs in software under these circumstances. They have ignored the authorities cited in footnote 15 above. Furthermore, a duty to disclose makes a lot of sense on efficiency grounds, as I have commented on (with my coauthor) elsewhere:

As a general matter, the efficiency standard calls for ‘the adoption of legal rules that facilitate the movement of assets to their most productive uses with as few transaction costs as possible.’ A duty to disclose material defects contributes to this goal in several ways. For example, the duty increases the flow of information and therefore the likelihood that each party will value what it gets more than what it gives up. In addition, a disclosure duty allocates the risk of material defects to the party best able to accommodate or avoid them. As a comment to § 3.05(b) [of the Principles of the Law of Software Contracts] states: ‘Hidden material defects, known to the software [licensor] but not disclosed, shift costs to the [licensee] who cannot learn of the defects until it is too late and therefore cannot protect itself.’ A disclosure duty should also create incentives for the software licensor to improve the quality of its software.

Disclosure also reduces transaction costs. For example, § 3.05(b) applies only if the licensee cannot reasonably ascertain the material defect. Therefore, a licensee need not engage in a costly and ultimately useless investigation to uncover material defects, information already in the possession of the licensor.¹⁸

Many additional normative reasons call for disclosure in this context. In substance, these reasons amount to an appeal for contracting parties to act fairly and reasonably.¹⁹

Here is one more example of a unilateral mistake that can lead to rescission. Suppose you have a garage sale and place several items on your driveway for your customers’ perusal. Alice asks to purchase your set of 45 r.p.m. records (the kind with the big hole in the middle), your ten-year-old Dell Computer, and your old set of golf clubs. You decide to sell the records for $12, the computer for $100, and the golf clubs for $15, but you don’t tell Alice the individual prices. You draw up a bill of sale listing the three items, but not their individual prices. You use your portable adding machine to add up the total because you were not good at arithmetic in school (and because your smartphone battery is dead). Unfortunately, you’re not too good at using the adding machine either, and you enter $10 for the computer instead of $100. You write $37 instead of $127 beside the three items, Alice pays you that amount, and carts off the junk.

Let’s assume that Alice reasonably is unaware of your clerical error. (Perhaps she was distracted by looking through the records and by finding Nancy Sinatra’s, “These Boots Are Made for Walking,” one of the most insipid, yet memorable, songs ever recorded.) You can rescind the deal. Contract law generally grants rescission for unilateral clerical errors.²⁰ Of course, the clerical error must be readily provable. If the real reason a party seeks relief is that she realizes the price was too high or low, an error of judgment, contract law should not grant her relief.²¹ Remember, people will not be very enthusiastic about making and relying on contracts if the other party can exit from them too easily.²²

On the other hand, if you can prove that you made a clerical error, your negligence in making the error should be irrelevant, unless extreme.²³ Contract law is not in the business of punishing parties for their harmless errors, even if the errors are pretty stupid. “Harmless” is a key word here, however. If Alice reasonably relies on your deal at the $37 price, you would not be able to rescind.²⁴

Incidentally, you can obtain judicial relief of another kind if you and Alice had agreed on a price of $127 before you committed your arithmetical error, but she now insists on holding you to the $37 contract. Contract law seeks to enforce the contract the parties intended to make, not the one that results from a failure to record the terms correctly on paper.²⁵ So you can ask the court to reform (rewrite) your contract to reflect the true price.²⁶

Before we leave this interesting subject, a word of warning. The age of computers, digital information, and electronic communication may mean that there will be more, not fewer, clerical errors. Consider Ben and Margaret Altruist (name change here to protect the silly, but the facts are true), who intended to send a donation to a zoo for $130, but ended up sending a check for $93,447 because their computer placed their ZIP code where the dollar amount was supposed to go. They got some of their money back, but the zoo had spent some of it. Spending the money without reasonably knowing about the mistake (apparently the zoo received lots of large donations) is a good defense to unilateral mistake claims.²⁷ Even big companies have been known to make such mistakes in their Internet advertisements by pricing their items way below what they intended, so watch out!

Now try this question based on an actual episode to see whether you have caught on so far. Recently a prestigious publisher asked me to review a book proposal and offered an honorarium without mentioning the amount. I provided the review and received the following communication: “Thanks for the quick turn around of your comments on the proposal. I appreciate this swiftness. I will send you your honorarium of $475 right away.” Honorariums for such efforts are usually extremely small and, being swift, I was suspicious. So I wrote back: “I assume you meant $75 (I would have written more for $475!).” The publisher replied, “right—I guess my shift key is a bit off. I will see that the $75 payment is issued.” Now here’s the test. What would have happened if I insisted on the $475? You are correct! I was aware of the error, so I would be out of luck.

From this discussion, it may appear that the exceptions to the mutuality requirement swallow up the rule. The exceptions infrequently apply, however. Most cases involve situations similar to the dissent’s description of Sherwood v. Walker, in which Sherwood had no hard facts about Rose’s condition. None of the exceptions apply to this scenario. Sherwood would not have a duty to disclose. Walker could not claim a clerical error or that Sherwood was aware of Walker’s error. So, in most cases, contract law affords no relief when the contract proves to be a losing one for one of the parties.

2.Material

The mutual mistake must also be material, meaning it must be large or serious.²⁸ This “m” caused some confusion because early decisions sought to distinguish between mistakes pertaining to the “substance” of a transaction, in which contract law would grant relief, and mistakes as to “quality” or “value” in which contract law would not grant relief. In Sherwood, for example, the majority based its decision in part on the fact that the mistake concerning Rose’s condition was one of substance.²⁹ But the dissent argued that the parties’ mistake, if any, was over one of the qualities of Rose, namely whether she could breed. Because substance and quality are not precise terms and courts manipulated them based on whether they thought that a mistake was material, the modern approach is to dispense with the substance and quality distinction and to ask directly whether the mistake was material (important).³⁰ The Walkers originally purchased Rose for $850, and she turned out to be worth at least $750,³¹ so the sale of Rose to Sherwood for about one tenth of her true value, which is the value of a barren cow, certainly seems to satisfy the materiality requirement.

3.Mistake

The third requirement focuses on whether the parties made a “mistake.” By mistake, courts are not talking about the dictionary meaning of the word. The parties would be mistaken in the dictionary sense if they thought that Rose was barren, but understood the possibility that she was not. But that would not be enough for a legal mistake, legal in the sense that it would give the Walkers the legal ground to avoid the contract. A useful way of thinking about a legal mistake is to ask whether the parties contracted on the basis of a set of facts that they took as true (Rose is barren) or whether they contracted on the basis of some conjecture as to the facts (Rose is probably barren). Contract law excuses the Walkers from their contract only in the former case.³²

The requirement of a legal mistake makes sense. Parties who make contracts value what they are getting more than what they are giving up, but they know that circumstances may be different than assumed and that they ultimately may be disappointed with their contract. Sherwood valued Rose more than $80, the purchase price, and the Walkers valued the money more than Rose. But each knew, at the time they struck the deal, that Rose might be worth a bit more or less than $80. In effect, they gambled over whether the deal would turn out to be beneficial. Contract law should not upset these wagers just because one or the other’s gamble proves to be wrong.³³ Otherwise, people could not rely on their contracts and would have little reason to make them. Why would you enter a contract to sell your neighbor, Alice, your piano for $400 if she could rescind the deal after learning that the market value of the piano was only $350? If both parties in Sherwood “knew” that they were selling and buying a barren cow and did not believe they were gambling over this quality of Rose, however, then affording relief to the Walkers when Rose turned out to be pregnant makes some sense. If the court required the Walkers to sell, it would be enforcing a contract the parties did not make and Sherwood would receive an undeserved windfall.

Another way of analyzing the mistake factor in Sherwood v. Walker is through the law of implied conditions.³⁴ If the contract expressly stated that the Walkers promised to sell Rose “on condition that Rose is barren,” the Walkers would not have to perform when Rose turned out to be pregnant.³⁵ Of course, contract language is often unclear about whether the parties allocated such a risk. For example, lots of courts agonize over whether the parties meant an “as is” clause or the like to allocate the risk of defects that are not easy to discover. Consider a clause that states that a purchaser of real property “has examined this property and agrees to accept same in its present condition.”³⁶ The court presented with this language held that the parties intended to allocate the risk of a defective septic system to the purchaser of the property, even though the purchaser failed to discover the defect after an inspection and the defect made the property uninhabitable. Another reasonable interpretation of the language is that the parties intended the purchaser to assume the risk only of those defects that a reasonable inspection would uncover. But this argument has not been very successful.³⁷ The message for the contract drafter (maybe you, some day) is to draft risk allocation clauses clearly. A general “as is” clause will not do.

Because the parties did not expressly allocate the risk of the mistake in Sherwood v. Walker, the issue for the court was whether a condition should be implied in fact or law. If Sherwood had specifically asked for a barren cow (destined for Wendy’s, let’s say), and the Walkers offered Rose for $80, with neither party suspecting Rose’s true nature, a good case could be made that the parties meant to condition the sale on Rose being what they thought she was—barren. On the other hand, if Sherwood had stated that he was interested in purchasing breeding cows, and thought that Rose could be made to breed, while the Walkers assumed otherwise, the parties obviously did not intend such a condition. We can understand the disagreement between the majority and dissent in Sherwood based on these alternative views of the facts. The majority clearly believed the facts were closer to the Wendy’s example, but the dissent favored the interpretation that Sherwood wanted to purchase a breeder.

Suppose the parties never discussed Rose’s qualities and, in fact, never even thought about this issue. The court must then wrestle with the question of whether to imply a condition precedent of Rose’s infertility as a matter of law. We saw in Chapter 7 the several sources of gap fillers available to the court, including economic analysis, fairness, and other instrumental reasons.³⁸ On fairness grounds, for example, a court would have to compare the parties’ positions if the court enforces the contract with their positions if it does not. If the court enforces the contract, Sherwood gets a cow worth at least $750 for $80. The Walkers lose at least $670, or more if you consider that they paid $850 for Rose. If the court refuses to enforce the contract, Sherwood loses a windfall of $670. The $670 is a windfall because, under the assumption that the parties never thought about Rose’s attributes, Sherwood’s skill in evaluating Rose or his bargaining prowess did not contribute to his achieving the large gain. If the court rescinds the contract, the Walkers continue to own an asset that is worth about what they paid for it. A good argument can therefore be made that the fair result is to find an implied-in-law condition precedent of Rose’s infertility and to grant the Walkers relief. (We will look at how economic analysis helps fill gaps shortly.)³⁹

The question of whether contracting parties made what we are calling a “legal mistake” comes up in lots of different contexts. Each calls for a difficult determination of whether the parties contracted on the basis of the perceived truth of certain facts or whether the parties were gambling over them. For example, suppose the owner of an office building leases space to a business and both parties believe the likely number of visitors to the business will not exceed 100 per day. It turns out that the business has three times that number of visitors per day and other tenants sorely complain about the wait time at elevators, the lack of parking, and the number of people wandering around the common areas. Fearing the loss of those tenants, the owner seeks to rescind the contract on the basis of mutual mistake. A court entertaining similar facts held that the owner could not sustain its mistake argument for various reasons, including the owner’s lack of “due diligence” in determining the approximate number of visitors.⁴⁰ The court could have found that the parties were gambling over the number of visitors and therefore the owner was not entitled to relief.

For another more common example, people suing for injuries in auto or other accidents often agree to releases after the defendant’s insurance company pays them a sum of money.⁴¹ Suppose Alice is in an auto accident and breaks her arm. She agrees to a release after the insurance company pays her $1000. Complications then develop and Alice’s arm falls off. Medical costs alone amount to over $100,000. Is Alice entitled to relief under the doctrine of mutual material mistake?

At first blush you might say (at least I would) that, although both parties thought she had only a $1000 injury (mutuality requirement satisfied) and that the difference between her apparent and actual injuries were material (more than 100 times as large), contract law should not excuse Alice from her release because the parties were not legally mistaken. Everyone knows that complications can develop after an injury and that a release allocates the risk of additional complications to Alice. Put another way, the parties gambled over whether the injury was worth more or less than $1000 and Alice lost the gamble.

This is the approach most courts have taken.⁴² However, when new injuries come to light that are sufficiently catastrophic and unforeseeable, some courts have been more receptive to a mistake argument.⁴³ The following reasoning supports such a result. Alice and the insurance company gambled over some degree of unknown risk, for example, the amount of time for her arm to heal, but they did not intend for Alice to take the risk of unknowable and catastrophic injuries. Granting relief to Alice in this situation should not threaten the reliability of releases because the reasoning would apply only in rare instances.

There is one situation in which a person who has sustained personal injuries has been quite successful in avoiding releases. I’m thinking of the unfortunate situation where the injured party does not know she is injured at all at the time of signing the release. Later, she learns the truth and seeks compensation for her injuries. Courts may grant relief under the theory of mutual, material, mistake.⁴⁴

B. IMPOSSIBILITY OF PERFORMANCE

1.Objective Impossibility

First we study “objective” impossibility, meaning that the promisor literally cannot perform because of circumstances beyond the promisor’s control. Then we will turn to “subjective” impossibility, where performance is impossible, but the promisor is somehow responsible for her plight.⁴⁵ Sorry, no relief to the silly promisor in the latter case.

Suppose on January 2, the owner of a music hall rents the hall to Eminem for a performance on April 2, for a rental fee of $5000. The contract says nothing about what happens if the music hall burns down. On March 30—you guessed it—the hall does burn down.⁴⁶ Is the music hall owner liable to Eminem for breach of contract when she cannot provide the hall for his singing (if that is what I should call what Eminem does)?

The parties wrongly assumed that the music hall would be in existence on April 2. When a supervening event makes performance impossible, such as a fire (or, for another example, the enactment of a law that makes performance illegal⁴⁷), contract law may excuse performance under the doctrine of “impossibility of performance.” But just as not every mistake excuses performance, not every event that makes performance impossible brings relief. The court first asks whether the parties allocated the risk of the event, like the fire, either expressly or impliedly in the contract. Further, if they didn’t contemplate the occurrence of the event at all, courts must fill the gap for the parties. This set of inquiries is no different than the implied-terms analysis discussed previously under the mutual mistake rubric.⁴⁸

a.Express Risk Allocation

I’ve already told you that the music-hall contract did not contain an express allocation of the risk of the music hall burning down. Of course, resolution of the case would be easy if it did. If the contract stated that “music hall promises to furnish the hall to Eminem on April 2, but if the music hall burns down before that date, music hall has no liability to Eminem,” a court should enforce this condition subsequent.⁴⁹ The music hall owner would not be liable to Mr. Eminem.

Express clauses such as above are often called “force majeure” clauses. Such terms excuse promisors in case of natural catastrophes, such as fires, earthquakes, or hurricanes—you get the picture. Force majeure clauses often also excuse promisors in case of war, governmental regulation, or labor strikes. For that matter, parties can condition a promisor’s performance on the non-occurrence of any event they choose. One caveat, however. Courts construe force majeure terms rather narrowly, meaning that if the disruption is not within the meaning of the clause, a court is not likely to include it by analogy.⁵⁰

b.Implied-in-Fact Risk Allocation

In the absence of an express allocation of the risk of a fire, the court will look for factual evidence to determine whether the parties nonetheless intended to release the music hall owner if fire destroyed the hall.⁵¹ Sources of interpretation discussed in Chapter 7, such as the parties’ negotiations and purposes, trade custom, and course of dealing, are helpful in determining the parties’ intentions.⁵² Remember also that courts prefer to decide cases based on the parties’ intentions and may strain to find them, because they feel uncomfortable filling gaps. After all, the parties, not the courts are supposed to draft contracts. Courts therefore may speak of the parties’ intentions even when the evidence is far from clear that the parties even thought about the matter.

c.Implied-in-Law Risk Allocation

In Taylor v. Caldwell, an old classic closely resembling my Eminem hypo, the court observed that the parties did not consider the possibility of the hall burning down when they wrote the agreement: “The parties when framing their agreement evidently had not present to their minds the possibility of such a disaster * * *.”⁵³ Instead of finding the parties’ intentions, the court filled the gap by asking how the parties would have allocated the risk of the fire had they thought about the issue. Specifically, the court thought that the parties would have excused the music hall owner. In language that some courts still use today, the court labeled the existence of the music hall the “foundation” of the contract, and held that the parties would have excused the music hall owner if the “foundation” was destroyed.⁵⁴

Thus, under the “foundation” approach, courts fill gaps first by finding the purpose of the contract and then by presuming the parties would have contracted to call off the deal if that purpose (foundation) was destroyed. This approach, which requires courts to predict how the parties at the agreement stage would have dealt with the unanticipated circumstances, leaves much to the court’s discretion and makes results hard to predict. One clue is that at the agreement stage the parties likely would have presumed that each would act reasonably and fairly as circumstance develop. For example, suppose a supplier contractually agrees to supply molasses from “the usual run from the National Sugar Refinery.”⁵⁵ If they had contracted with respect to the issue of unanticipated circumstances, the parties likely would have wanted to elucidate the kinds of events beyond the control of the supplier that would excuse performance. Willful, reckless, and negligent failures to perform surely would be absent from the list because parties expect reasonable conduct from their counterpart.⁵⁶

We have seen that another source of judicial gap filling is based on economic efficiency.⁵⁷ Some lawyer-economists assert that courts should fill gaps by supplying the rule the parties would have wanted. Unlike the court’s analysis in Taylor, however, the economic approach seeks to place the risk of unanticipated events more scientifically on the “superior risk bearer” or the “superior risk avoider” because that is what the parties would have wanted.⁵⁸ For example, the “superior risk bearer” is the party better able to bear the risk, such as by purchasing insurance.⁵⁹ Because the music hall owner can purchase fire insurance, this source of gap filling suggests the music hall owner should bear the risk of the hall’s demise. Impossibility therefore would not be a defense for the music hall under this approach.

d.The Restatement (Second) and the Uniform Commercial Code

The Restatement (Second) of Contracts and the UCC contain impossibility provisions.⁶⁰ The Restatement excuses a promisor when a person “necessary for the performance of a duty” dies or is so incapacitated that performance is impracticable.⁶¹ In such cases, the Restatement declares that the death or incapacity “is an event the non-occurrence of which was a basic assumption” of the contract.⁶² This rule constitutes a default or gap-filling rule that assigns the risk of the necessary person’s death or incapacity to the promisee. The Restatement (Second) also excuses a promisor when a “thing” necessary for performance fails “to come into existence,” is destroyed, or deteriorates sufficiently to make performance impracticable.⁶³ The UCC section 2–613 excuses a seller of goods when the goods are identified to the contract at the time of contracting and then, before the risk passes to the buyer,⁶⁴ they “suffer casualty” through no fault of the parties.⁶⁵ Consider, for example, a grower who has agreed to sell certain wheat to a grain elevator, but a violent flood destroys the wheat before harvesting. Under section 2–613, a court could excuse the grower. However, if the contract does not specify which wheat crop the grower will sell, the UCC does not protect the grower (because the goods are not identified to the contract).⁶⁶

2.Subjective Impossibility

Here’s a kind of impossibility that will not excuse a promisor. Let’s use the molasses-supplier hypo from subsection c above. Suppose the supplier of molasses promises to deliver “1,500,000 wine gallons * * * of the usual run from the National Sugar Refinery.”⁶⁷ National Sugar fails to produce a sufficient quantity of molasses and the purchaser sues when the supplier delivers only about 344,000 gallons. The supplier claims impossibility of performance because National Sugar fell down on the job!

If the supplier could have assured a sufficient quantity of molasses by contracting with National Sugar and failed to do so, the supplier’s impossibility claim will fail even though it is literally impossible for the supplier to perform.⁶⁸ This is because the shortfall was the “fault” of the supplier, who did not secure the contract with National Sugar. Because other suppliers, acting reasonably, would have obtained a contract with National Sugar and therefore could have performed, contract law calls our supplier’s impossibility “subjective” rather than “objective.”⁶⁹

The supplier’s failed impossibility defense can also be seen as interpretation of an implied condition. The parties impliedly conditioned the supplier’s performance on National Sugar producing enough molasses, provided that the supplier did everything reasonable to assure that National Sugar would produce a sufficient supply. This implication arises because of the purpose of the contract between the purchaser and the supplier. After all, why contract with a supplier if the supplier is not going to try to get a commitment for the product?⁷⁰ Alternatively, the court could justify the holding as gap-filling, finding that the parties would have constructed such a condition had they bargained over the matter.

C. IMPRACTICABILITY OF PERFORMANCE

Suppose a supervening event does not make performance impossible, but it dramatically increases the promisor’s cost of performance. Contract law also recognizes an excuse in this situation. Early cases recognized that absolute impossibility was too narrow a ground for relief: “ ‘A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost.’ ”⁷¹

Consider again the example with which we opened this chapter: An oil supplier seeks relief from a long-term, fixed-price contract to supply oil to an electric utility after an international disruption in oil supply causes the price of oil to skyrocket. Assume, for example, that oil becomes ten times more expensive for the supplier to import. Because this contract involves the sale of goods, the UCC would apply. Section 2–615(a) sets forth the standard of impracticability, and also serves as a model in non-sale of goods cases.⁷² The section provides in part:

Delay in delivery or non-delivery in whole or in part by a seller * * * is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made * * *.⁷³

You can see that section 2–615 requires that performance is “impracticable” and that the parties erred over their “basic assumption” that a contingency causing the impracticability would not occur.⁷⁴ Comment 4 to the section nicely fills out the meaning of these requirements:

Increased cost alone does not excuse performance unless the rise in cost is due to some unforeseen contingency which alters the essential nature of the performance. Neither is a rise or a collapse in the market in itself a justification, for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover. But a severe shortage of raw materials or of supplies due to a contingency such as war, embargo, local crop failure, unforeseen shutdown of major sources of supply or the like, which either causes a marked increase in cost or altogether prevents the seller from securing supplies necessary to his performance is within the contemplation of this section.⁷⁵

Let’s look further at the elements of impracticability of performance both in sale-of-goods and other contexts.

1.Impracticability

Together section 2–615 and comment 4 suggest that a very serious disruption must occur (“alters the essential nature;” “severe shortage;” “prevents the seller from securing supplies necessary to performance”).⁷⁶ Foreseeable moderate changes in market prices, consumer demand or the promisor’s financial situation alone should not be enough for a finding of impracticability because these are precisely the kinds of risks that parties expect to take when they enter contracts.⁷⁷ In our problem, the price of oil inflates by a factor of ten, which courts usually find sufficient to satisfy the impracticability test.⁷⁸

2.Basic Assumption

For a court to find impracticability, the parties’ basic assumption must be that the major disruption would not occur. This second requirement, as applied to our problem, boils down to the issue of whether the parties allocated the risk of the oil shortage expressly or impliedly in fact to the supplier, or whether they contracted on the assumption that such an oil disruption would not happen. If the facts support a finding that the parties intended to place the risk on the supplier, the court will not excuse the supplier on the basis of impracticability.⁷⁹ If the court believes a basic assumption of the parties was that there would be no such disruption (and the disruption is severe enough), the court will grant relief.⁸⁰ In the latter case, courts recognize that “[i]t is implicit * * * that certain risks are so unusual and have such severe consequences that they must have been beyond the scope of the assignment of risks inherent in the contract, that is, beyond the agreement made by the parties.”⁸¹

What are the sources of evidence that would suggest that the parties did in fact allocate the risk of the disruption to the supplier? Foreseeability of the risk plays a large role in lots of cases.⁸² If the parties reasonably should foresee a coming major disruption in oil supply and the supplier did not protect itself in the contract, many courts would say that the supplier must have intended to accept that risk,⁸³ or at least that the supplier should have protected itself. Thus, the court might draw on a fault-based reason for holding the supplier to the contract.

A caveat is in order with respect to the foreseeability factor, however. As nicely stated in Transatlantic Financing Corp. v. United States, “[f]oreseeability or even recognition of a risk does not necessarily prove its allocation. * * * Parties to a contract are not always able to provide for all the possibilities of which they are aware, sometimes because they cannot agree, often simply because they are too busy.”⁸⁴ Note that the court is saying that, even if a risk is foreseeable or foreseen, the parties did not necessarily intend to place that risk on the promisor. In short, the foreseeability of an event, or the fact that a risk was foreseen, should be probative factors in the risk allocation puzzle, perhaps heavily-weighted ones, but foreseeability should not preclude other inquiries.

What other facts are probative of the parties’ actual risk allocation? Perhaps to support the conclusion that the supplier accepted the risk of world events, the purchaser of the oil could prove that it paid a premium (extra) for the oil due to the risk the supplier was accepting. Some courts also believe that the type of contract is probative of risk allocation. For example, courts reason that a fixed-price contract shows that the supplier intended to accept the risk of price increases and the purchaser intended to accept the risk of falling prices.⁸⁵ (But the possibility always exists, and this is the maddening thing about impracticability analysis, that the parties did not allocate the risk of calamitous rising or falling prices.) Further, the purchaser might try to show that the custom in the trade or the parties’ course of dealing prove that suppliers ordinarily accept the risk of disruptions (at least to the extent experienced by the parties).⁸⁶

Thus far we have focused on our supplier’s plight and, therefore, the rights of sellers of goods to claim impracticability. But as should be clear, impracticability applies to other kinds of contracts,⁸⁷ and, for that matter, to purchasers of goods.⁸⁸ For an example of the latter, a buyer might claim impracticability when it agreed to excavate and purchase gravel from a landowner, only to find out that a large part of the gravel was under water and would be more than ten times the expected cost to excavate.⁸⁹ I know, I know, this is really a mistake example. The location of the gravel, underwater or not, was a situation that existed at the time of contracting, not a supervening event. But the court entertaining these facts treated the problem as one of impracticability (showing that these doctrines overlap).⁹⁰ In fact, the case is often cited as an early authority supporting the impracticability excuse.

D. FRUSTRATION OF PURPOSE

Impracticability cases involve grounds for excusing performance because an unanticipated event dramatically increases the cost of performance. What happens if the cost of performance does not change, but the value of what a party is going to receive drastically decreases? The famous case of Krell v. Henry⁹¹ deals with this issue. Henry saw Krell’s advertisement to rent his suite to view the King’s coronation procession and entered an agreement with Krell to use the suite for two days during the coronation. The King became ill and the procession did not take place. Did Henry have to honor his contract nonetheless?

Notice that Henry’s duty under the contract did not become more expensive due to the King’s illness and the lack of a coronation procession. However, what Henry was to receive, the value of the rooms, dramatically decreased for that reason. Although the contract did not expressly state that Henry’s purpose in renting the rooms was to view the procession, the court admitted parol evidence showing that purpose and found that viewing the procession was the “foundation” of the contract.⁹² Further, the court excused Henry because “a state of things * * * essential to [contract] performance perishe[d] or fail[ed] to be in existence,” and this failure “cannot reasonably be said to have been the contemplation of the parties at the date of the contract.”⁹³ This analysis once again is reminiscent of the other excuse doctrines in that it asks whether the parties’ allocated the risk of the supervening event, here the King’s illness and cancellation of the procession. All of the usual suspects come into play in answering this question. Was such an illness and cancellation foreseeable? Should Henry have “guard[ed] against” it?⁹⁴ Did Henry have other use for the rooms, or was viewing the procession the only purpose? In fact, the court cites Taylor v. Caldwell, an impossibility case (you remember, the music hall burned down and the court declared performance impossible), as authority for granting Henry relief.⁹⁵

The challenge in frustration cases (as well as in the other excuse domains) is drawing the line between events sufficiently unforeseeable and serious to justify granting relief and events not meeting these criteria. Contrast Krell v. Henry, for example, with another venerable case, Lloyd v. Murphy.⁹⁶ Murphy received no relief even though his five-year lease of a location “for the sole purpose of conducting thereon the business of displaying and selling new automobiles * * * and for no other purpose whatsoever” (except for an “occasional sale of a used automobile”) was impaired by a federal government order that first halted and then restricted the sale of new automobiles.⁹⁷ The court thought that Murphy’s hardship was insufficiently extreme because, with restrictions, he could continue to sell new cars. Further, the regulation restricting cars sales during World War II was foreseeable, even anticipated, at the time the parties contracted. In fact, at that time “[a]utomobile sales were soaring because the public anticipated that production would soon be restricted.”⁹⁸ Clearly Henry’s frustration claim was therefore more compelling, both in terms of the magnitude of the disruption and the lack of foreseeability of the supervening event. The latter observation, of course, requires the belief that the parties reasonably could not anticipate that the King could become so ill he would postpone the coronation.

E. REMEDIES AFTER A FINDING OF EXCUSE

Now we look at the question of what relief, if any, a court should grant to a party after the court has excused the other party from performing a contract. Suppose for example, you contract to construct a screen porch on the back of Alice’s house for $10,000. You purchase all of the materials for the construction, spending $1000 before new zoning regulations prohibit the construction of such porches. (This is unusual, but just go with the hypo.) You are a litigious sort and you sue Alice for breach of contract after she refuses to pay you anything. The court excuses Alice from the contract on the basis of impossibility (it would be illegal for you to build the porch.).⁹⁹ This means that you cannot recover your lost profit on the porch project. But what about your $1000 reliance loss?

1.Judicial Approach

Courts have not decided this remedial issue uniformly. Some courts simply “leave the parties where they find them” after declaring an excuse, meaning neither party gets anything once the court calls off the contract.¹⁰⁰ Under this approach, you can not recover the $1000. Other courts allow restitution claims, but your $1000 of expenses did not benefit Alice so you’re out of luck in those jurisdictions as well.¹⁰¹ Some courts do allow reliance recoveries, but the grounds for recovery may vary. Some of the possibilities: You can recover, but only for the work and supplies “wrought into” (incorporated in) the structure.¹⁰² Alternatively, you can recover for any essential reliance, meaning reliance “made pursuant to the specific request” of the party being excused “as set forth” in the contract.¹⁰³ Finally, you can recover, but only if Alice was somehow at fault in causing the event that excuses performance.¹⁰⁴ This, of course, is not the case in our hypo. But in another case where a general contractor’s bid was irregular and the general contractor therefore lost the main contract, a court held that the subcontractor could recover for its reliance loss even though the court declared the contract impossible to perform.¹⁰⁵

The Restatement (Second) of Contracts grants courts lots of flexibility in determining remedial issues after an excuse finding. Restatement sections 158 and 272 provide that:

Relief Including Restitution

(1)In any case governed by the rules [of mistake, impracticability and frustration], either party may have a claim for relief including restitution * * *.

(2)* * * [I]f those rules * * * will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties’ reliance interests.

Under the Restatement, you have a fighting chance to recover your $1000, but the court has lots of discretion to decide one way or the other. In terms of “justice,” you can argue that you spent the $1000 in a good faith belief that the contract would go through and, since you cannot recover your profit, awarding $1000 to you is a fair compromise. On the other hand, Alice can assert that you accepted the risk of supervening zoning regulations that would make performance impossible.

2.Judicial Reformation After an Unanticipated Event

We have now seen that courts sometimes excuse a party from performance and give limited relief or no relief to the other party, even when that other party is severely disappointed by recognition of the excuse. For example, you will not be very happy when a court declares your screen-porch construction contract unenforceable if you stood to make a handsome profit from its completion. While reading this chapter, perhaps the thought entered your mind that courts should reform (rewrite) contracts, not only because of a mistake in setting down the terms of the agreement,¹⁰⁶ but also because of unanticipated circumstances. Indeed, in a crude way that is what courts do when they award restitution or reliance to a disappointed party. But why won’t courts reform contracts, such as by adjusting the price of Rose 2d, instead of allowing the Walkers to rescind,¹⁰⁷ or by requiring the U.S. to pay some, but not all of Transatlantic’s extra expenses for transporting goods along a longer route because of war?¹⁰⁸

One now infamous case tried a judicial reformation strategy with results more calamitous than most of the disruptions in the cases we have discussed (at least in terms of feedback in the law reviews and by other courts). Aluminum Co. of America v. Essex Group¹⁰⁹ involved complex facts, but, boiled down, the case amounted to a promise by ALCOA to process aluminum and a promise by Essex to pay according to a price formula dependent on the wholesale price index (WPI). Unexpected cost increases not reflected in the WPI meant that ALCOA would lose over $75 million under the contract. Among lots of other things, the court found that “the shared objectives of the parties with respect to the use of the WPI have been completely and totally frustrated,” and reformed the pricing provision to allow ALCOA to receive its costs of processing plus a profit of one cent per pound.¹¹⁰

The reaction to this decision was brutal. One leading commentator of the time called the court’s decision “bizarre.”¹¹¹ Most of the criticism centered around the accusation that the court did not have the expertise or the power to rewrite contracts for the parties.¹¹² Writers who favored court adjustment in some circumstances (OK, I was one of them¹¹³) thought that courts could accomplish the task of judicial reformation, at least in some circumstances, and that courts did have the power to do so.

With respect to whether judges were qualified to reform contracts, surely the parties could do a better job themselves. However, when parties cannot agree whether one of them has been excused, or cannot agree on an appropriate adjustment formula, judicial reformation, such as in ALCOA, doesn’t seem that outlandish. For example, the parties’ goals in entering the contract and the contract’s express terms may offer guidance concerning how to adjust the contract. ALCOA bargained for a guaranteed market for its services, which it achieved by contracting with Essex Group. Obviously, it also desired to make a profit on the deal. Essex Group sought ALCOA’s commitment to perform the processing of Essex Group’s aluminum at a reasonable price.¹¹⁴ Although these are rather broad parameters, and do not tell us very much about the allocation of risk of unanticipated increases in the cost of processing, these purposes do suggest that the parties did not expect one party to face massive losses in performing the contract.

Other guidance also may be available. A court could look to similar contracts made or modified by others under comparable conditions. A court could also investigate documents or statements concerning the purpose of the use of the WPI in the ALCOA contract. For example, if the parties intended the provision to assure that ALCOA made a profit, a court could adjust the contract to ensure such a result.

As a general matter, the argument against judicial reformation based on the lack of judicial competence seems unpersuasive because judges routinely involve themselves in complex cases, apparently with the approval of actors in the legal system. I’m thinking, for example, of the substantive and remedial complexities of securities, patent, and antitrust cases. (Don’t worry, you’ll get to these in upperclass courses.) Critics of judicial reformation overlook resources available to judges, including special masters, magistrates, and expert witnesses.

As mentioned, critics also claim that courts do not have the power (meaning authority) to adjust a contract for the parties because the strategy restricts the parties’ freedom of contract.¹¹⁵ But lots of evidence suggests that business parties expect flexibility and cooperation when things go awry in their contracts.¹¹⁶ More concretely, they expect their contracting counterpart to agree to an adjustment when an unanticipated event means that one of them will suffer losses much greater than either imagined at the time of contracting.¹¹⁷ If the parties reasonably expect adjustment, judicial reformation is only a form of specific performance that supports parties’ freedom of contract. Of course, this argument depends on a finding that each party reasonably believed that the other is under a legal duty to be flexible.¹¹⁸

If the court finds that the parties did not foresee the magnitude of the problem that has developed and did not allocate its risk, then court reformation does not impinge on the parties’ freedom because the parties have left a gap in their agreement. Essex, of course, could have insisted that ALCOA promise to perform under all circumstances, in effect making ALCOA an insurer of the contract. In such a case, a court should hold ALCOA to its promise. But in the absence of such a promise, neither party is contractually entitled to any particular resolution of the contract breakdown. The parties’ failure to allocate the risk themselves arguably constitutes implicit consent to allow the court to intervene to adjust the agreement for them.

Finally, the criticism of court reformation based on freedom of contract fails to recognize that courts often “make” portions of contracts for the parties. We have seen, for example, that the UCC authorizes courts to fill gaps in contracts based on reasonableness, instructs courts to excise unconscionable terms from contracts, and allows specific performance according to terms the court views as “just.” In fact, a UCC comment expressly authorizes judicial reformation in excuse cases.¹¹⁹ In addition, courts have long adjusted non-sale-of-goods contracts, including covenants not to compete, and land-sale contracts.¹²⁰

Well, perhaps I should stop complaining about the criticisms of judicial reformation. At any rate, contract law has not, for the most part, embraced judicial reformation and remedies for mistake, and disruptive supervening events remain limited.¹²¹ In fact, some courts have been rather rude about ALCOA: “Under the logical consequences of [ALCOA] there would be no predictability or certainty for contracting parties who selected a future variable to measure their contract liability. Whichever way the variable fluctuated, the disappointed party would be free to assert frustrated expectations and seek relief via reformation.”¹²² But a careful analysis of many cases that discuss ALCOA (would I do otherwise?) shows that much of the criticism is of the court’s finding that ALCOA did not assume the risk of the price rise, rather than the court’s resolve to fix the contract for the parties.¹²³

¹See Chapter 1, Section (A); cf. Wood v. Boynton, 25 N.W. 42, 44 (Wis. 1885).

²See infra notes 45–98, and accompanying text.

³See infra notes 71–90, and accompanying text.

⁴33 N.W. 919 (Mich. 1887).

⁵Id. at 924.

⁶Id. at 923. See Restatement (Second) of Contracts § 152 (1981); see also Renner v. Kehl, 722 P.2d 262, 265 (Ariz. 1986) (“[A] contract may be rescinded when there is a mutual mistake of material fact which constitutes ‘an essential part and condition of the contract.’ ”) (quoting Mortensen v. Berzell Inv. Co., 429 P.2d 945, 947 (Ariz. 1967)); Dover Pool & Racquet Club, Inc. v. Brooking, 322 N.E.2d 168, 170 (Mass. 1975) (“We have long recognized that land contracts may be rescinded for mutual mistake.”).

⁷Kendrick v. Barker, 15 P.3d 734 (Wy. 2001) (mistake must be shared by both parties).

⁸Sherwood, 33 N.W. at 925 (Sherwood, J., dissenting).

⁹See George E. Palmer, Mistake and Unjust Enrichment 95 (1962) (“Sherwood was a banker who also had a stock farm on which he raised purebred cattle. The whole sense of the matter suggested that he was not buying the purebred cattle * * * to fatten and sell for beef; rather * * * he thought there was a chance Rose 2d would breed.”).

¹⁰See Chapter 6, Section (B)(2).

¹¹See id.

¹²405 A.2d 54 (Conn. 1978).

¹³See Chapter 6, Section (B)(1)(a).

¹⁴Johnson, 405 A.2d at 55–56.

¹⁵See, e.g., Waldridge v. Homeservices of Kentucky, Inc., 2011 WL 159738 (Ky Ct. App. 2011) (realtor liable for failing to disclose); Holman v. Howard Wilson Chrysler Jeep, Inc., 972 So.2d 564, 568 (Miss. 2008) (“The duty to disclose is based upon a theory of fraud that recognizes that the failure of a party to a business transaction to speak may amount to a suppression of a material fact which should have been disclose and is, in effect, fraud.”); Hill v. Jones, 725 P.2d 1115, 1118–19 (Ariz. Ct. App. 1986) (“[U]nder certain circumstances there may be a ‘duty to speak.’ * * *. [N]ondisclosure of a fact known to one party may be equivalent to the assertion that the fact does not exist * * *. Thus, nondisclosure may be equated with and given the same legal effect as fraud and misrepresentation.”); Johnson v. Davis, 480 So.2d 625, 629 (Fla. 1985) (holding that “where the seller of a home knows of facts materially affecting the value of the property which are not readily observable and are not known to the buyer, the seller is under a duty to disclose them to the buyer”).

The Restatement (Second) of Contracts in section 161(b) supports the cases: “A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist * * * where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.” Section 161, comment d adds: “A seller of real or personal property is * * * ordinarily expected to disclose a known latent defect of quality or title that is of such character as would probably prevent the buyer from buying at the contract price.”

¹⁶Restatement (Second) of Contracts § 161(b); see also RegScan, Inc. v. Con-Way Transp. Servs., Inc., 875 A.2d 332, 340 (Pa. Super. Ct. 2005) (“Where the mistake is unilateral, if the non-mistaken party knows or has reason to know of the unilateral mistake, and the mistake, as well as the actual intent of the parties, is clearly shown, relief will be granted to the same extent as a mutual mistake.”); Aviation Sales, Inc. v. Select Mobile Homes, 548 N.E.2d 307, 310 (Ohio Ct. App. 1988) (“[A] contract is voidable if one party made a mistake at the time that contract was entered into, the mistake had a material effect on the agreed exchange of performances that was adverse to the mistaken party, and the other party had reason to know of the mistake.”); Elsinore Union Elementary Sch. Dist. v. Kastorff, 353 P.2d 713, 717 (Cal. 1960) (“Relief from mistaken bids is consistently allowed where one party knows or has reason to know of the other’s error and the requirements for rescission are fulfilled.”).

¹⁷See Powder Horn Constructors, Inc. v. City of Florence, 754 P.2d 356, 364 (Colo. 1988) (“Here, [defendant] did not act upon any reasonable expectations, but rather sought to take advantage of [plaintiff’s] mistake and gain a windfall profit.”); see also Jackson Enters., Inc. v. Maguire, 355 P.2d 540, 543 (Colo. 1960) (“[O]ne party can not knowingly take advantage of the mistake of the other party to the contract.”).

¹⁸Robert A. Hillman & Maureen O’Rourke, Defending Disclosure in Software Licensing, 78 U. Chi. L. Rev. 95, 97 (2011) (citations omitted).

¹⁹Id. at 101–103 (discussing, among other things, corrective justice and morality). Section 3.05(b) of the Principles of the Law of Software Contracts requires disclosure in this context.

²⁰Kenneth E. Curran, Inc. v. State, 215 A.2d 702, 704 (N.H. 1965) (“[E]quity recognizes that honest, sincere men, even in the exercise of ordinary care, under such pressure can make mistakes of such a fundamental character that enforcement of the apparently resulting agreement would be unconscionable. In such a situation * * * equitable relief will be granted.”). But see Triple A Contractors, Inc. v. Rural Water Dist. No. 4, 603 P.2d 184, 186 (Kan. 1979) (“We see no occasion to make a distinction between a clerical error and an error in judgment * * *. [I]n the absence of fraud a unilateral mistake does not excuse the nonperformance of a contract.”).

²¹See Berg v. Hessey, 256 N.W. 562, 564 (Mich. 1934) (“Rescission is not a vent for bad bargains unless induced by fraud * * *.”); Wood v. Boynton, 25 N.W. 42, 44 (Wis. 1885) (“[Plaintiff] cannot repudiate the sale because it is afterwards ascertained that she made a bad bargain.”).

²²See supra note 3, and accompanying text.

²³Florida Ins. Guar. Ass’n v. Love, 732 So.2d 456, 457 (Fla. Dist. Ct. App. 1999) (granting recission because while defendant’s “error certainly involved some degree of negligence, the evidence was not sufficient to support a finding of an inexcusable lack of due care”); White v. Berrenda Mesa Water Dist., 87 Cal.Rptr. 338, 343 (Ct. App. 1970) (“[P]laintiff will not be denied rescission or reformation because of lack of care unless his conduct amounts to gross negligence or the neglect of a legal duty.”) (citing Van Meter v. Bent Constr. Co., 297 P.2d 644, 647 (Cal. 1956)).

²⁴Maryland Cas. Co. v. Krasnek, 174 So.2d 541, 543 (Fla. 1965) (stating that rescission is inappropriate where “respondent so changed his position in reliance upon petitioner’s undertaking that it would be unconscionable to rescind the contract or that it would be impossible to restore him to the status quo”); see also John Price Assocs., Inc. v. Warner Elec., Inc., 723 F.2d 755, 757 (10th Cir. 1983) (“[Defendant] submitted a bid * * * with the expectation that companies bidding on the general contract would rely on its bid in making their bids. [Plaintiff] relied on [defendant’s] bid * * *. In this situation promissory estoppel should apply to prevent [defendant] from withdrawing its bid.”).

²⁵Metropolitan Prop. & Cas. Ins. Co. v. Dillard, 487 S.E.2d 157, 159 (N.C. Ct. App. 1997) (where by mutual mistake home insurance policy includes wrong address reformation “is proper to give effect to the terms of the contract the parties originally agreed upon”); Morton v. Park View Apartments, 868 S.W.2d 448, 451 (Ark. 1993) (“Courts of equity have the authority to reform deeds when the evidence is clear, convincing, and decisive that there is * * * a mutual mistake in the drafting of the instrument * * *.”).

²⁶See, e.g., E. Allan Farnsworth, Contracts 430–32 (4th ed. 2004).

²⁷See, e.g., Collins v. HSBC Bank USA, 759 N.Y.S.2d 156, 157 (App. Div. 2003) (“Generally, if a payor pays money based upon the erroneous assumption that it is indebted to the payee, the payee is not entitled to retain the money acquired by the mistake of the payor, even if the mistake is the result of negligence. However, where the receiving party has changed its position to its detriment in reliance upon the mistake recovery may be denied.”).

²⁸Palumbo v. Ewing, 540 F. Supp. 388, 393 (D. Del. 1982) (Land sale rescinded in light of “evidence adduced at trial as to the potentially adverse health, safety and aesthetic ramifications of the location of [a previously unknown] sewer line and manhole, * * * constitut[ing] a material fact as to which the parties were mutually mistaken”).

²⁹Sherwood v. Walker, 33 N.W. 919, 923 (Mich. 1887) (“[T]he mistake or misapprehension of the parties went to the whole substance of the agreement. If the cow was a breeder, she was worth at least $750; if barren, she was worth not over $80.”).

³⁰See, e.g., Lenawee County Bd. of Health v. Messerly, 331 N.W.2d 203, 209 (Mich. 1982) (“We find that the inexact and confusing distinction between contractual mistakes running to value and those touching the substance of the consideration serves only as an impediment to a clear and helpful analysis * * *.”).

³¹Sherwood, 33 N.W. at 920.

³²Restatement (Second) of Contracts § 296 (“A party bears the risk of a mistake when * * * 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 * * *.”); Bennett v. Shinoda Floral, Inc., 739 P.2d 648, 654 (Wash.1987) (when parties contract on the basis of a conjecture “there is no mistake. Instead, there is an awareness of uncertainty or conscious ignorance of the future”).

³³City of The Colony v. North Tex. Mun. Water Dist., 272 S.W.3d 699, 735 (Tex. App. 2008) (“The doctrine of mutual mistake must not routinely be available to avoid the results of an unhappy bargain. Parties should be able to rely on the finality of freely bargained agreements.”); Covich v. Chambers, 397 N.E.2d 1115, 1121 (Mass. App. Ct.1979) (“Avoidance is not permitted just because one party is disappointed in the hope that the facts accord with his wishes.”); Aldrich v. Travelers Ins. Co., 56 N.E.2d 888, 889 (Mass. 1944) (“Neither side can rescind the contract merely because the known and assumed risk turned out to be greater than either or both expected it to be.”).

³⁴See Chapter 8, Section (C).

³⁵See, e.g., Lenawee County Bd. of Health v. Messerly, 331 N.W.2d 203 (Mich. 1982); Restatement (Second) of Contracts § 154(a).

³⁶Lenawee, 331 N.W.2d at 205.

³⁷See id.; cf. UCC § 2–316(3)(a) (“as is” clause disclaims implied warranties in the sale of goods).

³⁸See Chapter 7, Section (B)(3).

³⁹See infra notes 57–59, and accompanying text. For a case discussing Sherwood v. Walker, see Tracy v. Morell, 948 N.E.2d 855 (Ind. Ct. App. 2011).

⁴⁰Canpro Investments Ltd. v. U.S., 130 Fed. Cl. 320 (Ct. Fed. Cl. 2017).

⁴¹E.g., McWaters v. Parker, 995 F.2d 1366, 1370 (7th Cir. 1993) (“A valid release bars a claimant from bringing a subsequent cause of action on the claim he released.”); see also Kendrick v. Barker, 15 P.3d 734 (Wy. 2001) (discussing policy reasons for enforcing releases); Matlock v. National Union Fire Ins. Co., 925 F. Supp. 468, 475 (E. D. Tex. 1996) (doubting validity of release because it was “unlikely that a plaintiff who was seeking $25,000 and who agreed to settle the claim for $2,500 intended to foreclose her option to seek a judicial remedy for any subsequent noncompliance”).

⁴²See, e.g., Kendrick v. Barker, 15 P.3d 734 (Wy. 2001) (discussing policy reasons for enforcing releases); Christensen v. Oshkosh Truck Corp., 12 F.3d 980, 989 (10th Cir. 1993) (holding that a release showed defendant “assumed the risk of all consequences arising from the known injury to his head, including any unforeseen consequences of that injury”); Gumberts v. Greenberg, 115 N.E.2d 504, 507 (Ind. Ct. App. 1953) (“[A]s a general rule, where the intention to settle for unknown injuries is clearly expressed, and there is no fraud or overreaching involved, the release is a bar to recovery for injuries subsequently discovered.”).

⁴³Reynolds v. Merrill, 460 P.2d 323, 324 (Utah 1969) (holding court must “distinguish between an unknown injury and unknown consequences of a known injury. The former can be the basis of a mutual mistake of fact, while the latter would be only a mistake of opinion”); Nygard v. Minneapolis St. Ry. Co., 179 N.W. 642, 643 (Minn. 1920) (“[P]arties in settling had in mind only the superficial bruises received in the accident and of which they had knowledge, and that the amount paid was to compensate merely for the loss of wages likely to result therefrom. There was no compromise of a disputed claim or of unknown injuries.”).

⁴⁴Bennett v. Shinoda Floral, Inc., 739 P.2d 648, 653 (Wash. 1987) (en banc) (“When a person signs a release of all claims and has no knowledge that he has any personal injury * * * it is supportable to permit avoidance of the release once it is found that the release was not executed fairly and knowingly.”); Denton v. Utley, 86 N.W.2d 537, 542 (Mich. 1957) (“A releasor who believes he is without personal injuries, or that he has certain minor injuries only, and who, secure in his belief, executes a general release, will not be bound by it if other and more serious injuries are discovered later.”).

⁴⁵See Columbian Nat’l Title Ins. Co. v. Township Title Servs., Inc., 659 F. Supp. 796, 802 (D. Kan. 1987) (“A distinction is drawn between impracticability that is ‘subjective’ and ‘objective.’ This has been described as the difference, respectively, between ‘I cannot do it’ and ‘the thing cannot be done.’ Only objective impracticability will relieve a party of its contractual obligation.”).

⁴⁶See Taylor v. Caldwell, 122 Eng. Rep. 309, 311, 3 B & S 826, 830 (Q.B. 1863).

⁴⁷See, e.g., Rohr v. Reliance Bank, 826 F.3d 1046, 1052–1053 (8th Cir. 2016).

⁴⁸See supra notes 34–44, and accompanying text.

⁴⁹For a discussion of conditions subsequent, see Chapter 8, Section (B)(4).

⁵⁰Kel Kim Corp. v. Central Mkts., Inc., 519 N.E.2d 295, 296 (N.Y. 1987) (“Ordinarily, only if the force majeure clause specifically includes the event that actually prevents a party’s performance will that party be excused.”); see also Seitz v. Mark-O-Lite Sign Contractors, Inc., 510 A.2d 319, 321 (N.J. Super. Ct. Law Div. 1986) (“[T]he catch-all language of the force majeure clause relied upon by defendant is not to be construed to its widest extent; rather, such language is to be narrowly interpreted as contemplating only events or things of the same general nature or class as those specifically enumerated.”).

⁵¹See Taylor v. Caldwell, 122 Eng. Rep. 309, 312, 3 B & S 826, 834 (Q. B. 1863) (“There seems little doubt that [excusing performance when the foundation of the contract becomes impossible] tends to further the great object of making the legal construction such as to fulfil the intention of those who entered into the contract.”); see also McGhee v. Arabian Am. Oil Co., 871 F.2d 1412, 1419 (9th Cir. 1989) (“A court looks to the contract for an express or implied allocation of risks where circumstances beyond a party’s control cause it to breach a contract.”).

⁵²See Chapter 7, Section (B)(1)(b); see also In re Sears, 863 F.3d 973, 978–979 (8th Cir. 2017) (no evidence parties intended to allocate the risk); Transatlantic Fin. Corp. v. United States, 363 F.2d 312, 316 (D.C. Cir. 1966) (“Proof that the risk of a contingency’s occurrence has been allocated may be expressed in or implied from the agreement. Such proof may also be found in the surrounding circumstances, including custom and usages of the trade.”).

⁵³Taylor v. Caldwell, 122 Eng. Rep. 309, 312, 3 B & S 826, 833 (Q.B. 1863).

⁵⁴Id.

⁵⁵Canadian Indus. Alcohol Co. v. Dunbar Molasses Co., 179 N.E. 383 (N.Y. 1932).

⁵⁶Id.

⁵⁷See Chapter 7, Section (B)(3).

⁵⁸See Richard Posner and Andrew M. Rosenfield, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 J. Legal Stud. 83, 97–104 (1977).

⁵⁹In re Brame, 23 B.R. 196, 201 (Bankr. W.D. Ky. 1982) (“Economic analysis of loss-shifting suggests that losses should be borne by the ‘superior risk-bearer’—a designation given, in the esoteric parlance of economics, to the party to a transaction who is in the best position to appraise the nature and extent of risks contractually assumed and the possibility of losses resulting from their occurrence.”); Transatlantic, 363 F.2d at 319 (“[Plaintiff] Transatlantic was no less able than the [defendant] to purchase insurance to cover the contingency’s occurrence. If anything, it is more reasonable to expect owner-operators of vessels to insure against the hazards of war.”).

⁶⁰Restatement (Second) of Contracts §§ 262, 263; UCC § 2–613.

⁶¹Restatement (Second) of Contracts § 262; see also Cazares v. Saenz, 256 Cal.Rptr. 209, 212 (Ct. App. 1989) (“Where a contract contemplates the personal services of a party, performance is excused when that party dies or becomes otherwise incapable of performing.”).

⁶²Restatement (Second) of Contracts § 262; see also In re Estate of Sheppard, 789 N.W. 2d 616, 620 (Ct. App. Wis. 2010) (“basic assumption is that both parties will be alive.”); In re Estate of Sauder, 156 P.3d 1204, 1212 (Kan. 2007) (“[W]here the existence of a particular person is necessary for the performance of a contractual duty, the death of that person, or his or her loss of capacity to perform the duty, discharges the obligor’s duty to perform.”).

⁶³Restatement (Second) of Contracts § 263; see also Opera Co. of Boston, Inc. v. Wolf Trap Found. for the Performing Arts, 817 F.2d 1094, 1102 (4th Cir. 1987) (“[T]he existence of electric power was necessary for the satisfactory performance by the Opera Company * * *. Such findings meet the requirement of Restatement (Second) on Contracts § 263for an event, the ‘non-occurrence of which was a basic assumption on which the contract was made * * *.’ ”); Bissell v. L.W. Edison Co., 156 N.W.2d 623, 626 (Mich. Ct. App. 1967) (“[T]he essence of the modern defense of impossibility is that the promised performance was at the making of the contract, or thereafter became, impracticable owing to some extreme or unreasonable difficulty, expense, injury, or loss involved, rather than that it is scientifically or actually impossible.”) (citing 6 Samuel Williston & George Thompson, A Treatise on the Law of Contracts § 1931 (rev. ed. 1936)).

⁶⁴See UCC §§ 2–509, 2–510 (risk of loss).

⁶⁵UCC § 2–613; see also Windows, Inc. v. Jordan Panel Sys. Corp., 177 F.3d 114, 116 (2d Cir. 1999) (“Because the goods suffered casualty ‘without fault of either party,’ Section 2–613(b) was found to bar [purchaser’s] suit * * *.”); Red River Commodities v. Eidsness, 459 N.W.2d 805, 807 (N.D. 1990) (“Impossibility caused by casualty or commercial impracticability caused by failure of presupposed conditions excuses performance of contracts for sale of goods.”); Conway v. Larsen Jewelers, Inc., 429 N.Y.S.2d 378, 380 (Civ. Ct. 1980) (“When the subject matter of a contract is destroyed (or, as in this case, stolen) through no fault of the seller, the contract is deemed avoided.”).

⁶⁶Clark v. Wallace County Co-op. Equity Exch., 986 P.2d 391, 393 (Kan. Ct. App. 1999) (“[A] seller of grain is not excused by [UCC provisions] from the delivery performance specified in an agreement of this nature when the grain is not identified by a specific tract of land on which it is to be grown.”); Bunge Corp. v. Recker, 519 F.2d 449, 451 (8th Cir. 1975) (“[A]ppellee could have fulfilled its contractual obligation by acquiring the beans from any place or source as long as they were grown within the United States.”).

⁶⁷Canadian Indus. Alcohol Co. v. Dunbar Molasses Co., 179 N.E. 383, 384 (N.Y. 1932).

⁶⁸Id. at 384.

⁶⁹Farnsworth, supra note 26, at 632–33.

⁷⁰Canadian Indus. Alcohol, 179 N.E. at 384 (“If the plaintiff had been so informed, it would very likely have preferred to deal with the refinery directly, instead of dealing with a middleman.”).

⁷¹Mineral Park Land Co. v. Howard, 156 P. 458, 460 (Cal. 1916) (quoting 1 Charles Fisk Beach, A Treatise on the Modern Law of Contracts, § 216 (1897)); see also Prusky v. Reliastar Life Ins. Co., 474 F. Supp. 2d 695, 700 (E.D. Pa. 2007) (“The usual situations in which impracticability arises involve either extreme difficulty or expense, or the threat that performance will result in injury.”); Natus Corp. v. United States, 371 F.2d 450, 456 (Ct. Cl. 1967) (“[S]omething is impracticable when it can only be done at an excessive and unreasonable cost.”); Restatement (Second) of Contracts §§ 262, 263.

⁷²See Restatement (Second) of Contracts § 261; Moyer v. Little Falls, 510 N.Y.S.2d 813, 814 (Sup. Ct. 1986) (“[UCC 2–615] has been applied in non-commercial cases * * *. [S]uch a provision suggests an underlying policy of the law to protect a contracting party from unforeseeable hardships.”).

⁷³UCC § 2–615(a).

⁷⁴See Aluminum Co. of Am. v. Essex Group, Inc., 499 F. Supp. 53, 71 n.11 (W.D. Pa. 1980) (“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.”); Mishara Constr. Co., Inc. v. Transit-Mixed Concrete Corp., 310 N.E.2d 363, 367 (Mass. 1974) (“ ‘The important question is whether an unanticipated circumstance has made performance of the promise vitally different from what should reasonably have been within the contemplation of both parties when they entered into the contract. If so, the risk should not fairly be thrown upon the promisor.’ ”) (quoting 6 Samuel Williston & George Thompson, A Treatise on the Law of Contracts § 1931 (rev. ed. 1936)). For a recent case, see, e.g., Chase Manhattan Bank v. Iridium Africa Corp., 474 F. Supp. 2d 613, 620 (D. Del. 2007) (“The defense of impracticability requires the defendant to establish three elements: (1) the occurrence of an event, the nonoccurrence of which was a basic assumption of the contract; (2) the continued performance is not commercially practicable; and (3) the party claiming impracticability did not expressly or impliedly agree to performance in spite of impracticability that would otherwise justify nonperformance.”).

⁷⁵UCC § 2–615, cmt. 4.

⁷⁶See Karl Wendt Farm Equip. Co. v. International Harvester Co., 931 F.2d 1112 (6th Cir. 1991) (“unreasonable and extreme” downturn in market required); Lawrance v. Elmore Bean Warehouse, Inc., 702 P.2d 930, 933 (Idaho Ct. App. 1985) (“The language of [UCC 2–615] comment 4 makes it incumbent upon [defendant] to show it can operate only at a loss and that loss will be so severe and unreasonable that failure to excuse performance would result in a grave injustice.”).

⁷⁷Karl Wendt Farm Equip., 931 F.2d at 1117–18 (quoting Restatement (Second) of Contracts § 261, cmt. b); Wagner & Wagner Auto Sales, Inc. v. Land Rover N. Am., Inc., 539 F. Supp. 2d 461, 472 (D. Mass. 2008) (“If the normal ebb and flow of consumer demand in a market-based economy were adequate grounds for excusing contractual performance, scarcely any contract could be enforced at all.”); Columbian Nat’l. Title Ins. Co. v. Township Title Servs., Inc., 659 F. Supp. 796, 803 (D. Kan. 1987) (“When the contingency in question is sufficiently foreshadowed at the time of contracting, the contingency may be considered among the business risks that are regarded as part of the negotiated terms of the contract, either consciously or as a matter of reasonable, commercial interpretation from the circumstances.”).

⁷⁸Mineral Park Land Co. v. Howard, 156 P. 458, 459 (Cal. 1916) (“[Complete performance would be possible] only at a prohibitive cost, that is, at an expense of 10 or 12 times as much as the usual cost per yard.”); see also Canpro Investments Ltd. v. U.S., 130 Fed. Cl. 320 (Ct. Fed. Cl. 2017) (performance must cause “extreme and unreasonable difficulty”); American Trading & Prod. Corp. v. Shell Int’l Marine, Ltd., 453 F.2d 939, 942–43 (2d Cir. 1972) (“[The] additional expense involved * * * an increase of less than one third * * * is not sufficient to constitute commercial impracticability * * *.”).

⁷⁹Cf. Agricultural Revolving Loan Fund v. Carpenter, 869 P.2d 1181,1184 (Alaska 1994) (“The disclaimers in the land sale contracts disclaim any warranty as to the soil condition or profitability of the land purchased by [defendant] * * *. [Defendant] assumed the risk of the condition of the land that he purchased.”); City of Littleton v. Employers Fire Ins. Co., 453 P.2d 810, 814–15 (Colo. 1969) (“The exception to the defense of impossibility is applicable where, on an interpretation of the contract in the light of accompanying circumstances and usages, the risk of impossibility due to presently unknown facts is clearly assumed by the promisor.”).

⁸⁰Restatement (Second) of Contracts § 261, cmt. b.

⁸¹Mishara Constr. Co. v. Transit-Mixed Concrete Corp., 310 N.E.2d 363, 367 (Mass. 1974).

⁸²E.g., Roy v. Stephen Pontiac-Cadillac, Inc., 543 A.2d 775, 778 (Conn. App. Ct. 1988) (“If the risk of the occurrence of the contingency was unforeseeable, the seller cannot be said to have assumed that risk. If the risk of the occurrence of the contingency was foreseeable, that risk is tacitly assigned to the seller.”); Waldinger Corp. v. CRS Group Eng’rs, Inc., 775 F.2d 781, 785 (7th Cir. 1985) (“Because the purpose of a contract is to place the reasonable risk of performance upon the promisor, however, it is presumed to have agreed to bear any loss occasioned by an event that was foreseeable at the time of contracting.”).

⁸³Blackstone Consulting, Inc. v. United States, 65 Fed. Cl. 463, 472 (Fed. Cl. 2005) (“In order to show that the non-occurrence was a basic assumption and that the non-performing party did not assume the risk of occurrence, the non-performing party must show that the occurrence of the event was not foreseeable at the time the parties entered into the contract. If the event was foreseeable, then it will be implied that the non-performing party assumed the risk.”); Roy, 543 A.2d at 778 (“The seller’s failure to provide a contractual excuse against the occurrence of a foreseeable contingency may be deemed to be an assumption of an unconditional obligation to perform.”); see also Kel Kim Corp. v. Central Mkts., Inc., 519 N.E.2d 295, 296 (N.Y. 1987) (“[T]he impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract * * *.”).

⁸⁴Transatlantic Fin. Corp. v. United States, 363 F.2d 312, 318 (D.C. Cir. 1966).

⁸⁵Golsen v. ONG W., Inc., 756 P.2d 1209, 1213 (Okla. 1988) (“The defendant acquires a contractually-assured supply while the plaintiffs are assured a market; both parties doing so at a price which is an agreed part of the bargain.”); see also Northern Ind. Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265, 267 (7th Cir. 1986) (“[Buyer] was eager to have an assured supply of low-sulphur coal and was therefore willing to guarantee both price and quantity.”).

⁸⁶Cf. Colley v. Bi-State, Inc., 586 P.2d 908, 911 (Wash. Ct. App. 1978) (“Here, the agreement was supplemented by evidence of trade usage that parties to this type of agreement intend to be bound regardless of the success of the seller’s crop * * *.”).

⁸⁷See, e.g., Cape-France Enters. v. Estate of Peed, 29 P.3d 1011 (Mont. 2001) (sale of land); Marcovich Land Co. v. J.J. Newberry Co., 413 N.E.2d 935 (Ind. Ct. App. 1980) (lease); Bissell v. L.W. Edison Co., 156 N.W.2d 623 (Mich. Ct. App. 1967) (construction contract).

⁸⁸UCC § 2–615, cmt. 9; Lawrance v. Elmore Bean Warehouse, 702 P.2d 930, 933 (Idaho Ct. App. 1985) (purchaser not excused).

⁸⁹Mineral Park Land Co. v. Howard, 156 P. 458, 459 (Cal. 1916).

⁹⁰Id. at 460 (“But, where the difference in cost is so great as here, and has the effect, as found, of making performance impracticable, the situation is not different from that of a total absence of earth and gravel.”).

⁹¹2 K.B. 740 (Eng. C.A. 1903); see also Canpro Investments Ltd. v. U.S., 130 Fed. Cl. 320, 345 (Ct. Fed. Cl. 2017) (frustration requires that the “value of the performance [becomes] worthless” to the party claiming frustration).

⁹²Krell, 2 K.B. at 749 (“[I]t is said that the condition or state of things need not be expressly specified, but that it is sufficient if that condition or state of things clearly appears by extrinsic evidence to have been assumed by the parties to be the foundation or basis of the contract, and the event which causes the impossibility is of such a character that it cannot reasonably be supposed to have been in the contemplation of the contracting parties when the contract was made. In such a case the contracting parties will not be held bound * * *.”).

⁹³Id. at 751, 754.

⁹⁴Id. at 752.

⁹⁵Id. at 752, 753; see supra notes 53–59, and accompanying text.

⁹⁶153 P.2d 47 (Cal. 1944).

⁹⁷Id. at 48–49.

⁹⁸Id. at 51; see also Gander Mt. Co. v. Islip U-Slip LLC, 923 F. Supp. 2d 351 (N.D.N.Y. 2013) (lease of a retail store not frustrated by failure of lessee to obtain flood insurance in an area known for severe flooding).

⁹⁹Quagliana v. Exquisite Home Builders, Inc., 538 P.2d 301, 306–07 (Utah 1975) (“Since the performance for which the parties had bargained—the construction of a house with a view of the valley, in accordance with the plans and specifications and in conformity with all zoning ordinances and restrictive covenants—was impossible from its inception, the sole remedy available to Exquisite for reimbursement was restitution.”).

¹⁰⁰20th Century Lites, Inc. v. Goodman, 149 P.2d 88, 92 (Cal. App. Dep’t Super. Ct. 1944) (“[B]oth parties thereto were excused from further performance.”); Butterfield v. Byron, 27 N.E. 667, 667 (Mass. 1891) (“[D]estruction of [house] without the fault of either of the parties will excuse performance of the contract, and leave no right of recovery of damages in favor of either against the other.”) (citing Taylor v. Caldwell, 122 Eng. Rep. 309 (Q.B. 1863)); see also Andrew Kull, Mistake, Frustration, and the Windfall Principle of Contract Remedies, 43 Hastings L. Rev. 1, 1 (“A substantial body of case law supports an important but unacknowledged rule of contract doctrine: that the proper legal response to certain problems resulting from contracts that are ‘incomplete’ * * * is to leave the parties alone.”).

¹⁰¹Lichtenfels v. Bridgeview Coal Co., 531 A.2d 22, 26 (Pa. Super. Ct. 1987) (“[A] party whose duty of performance is discharged due to impracticability ‘is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance * * *.’ ”) (quoting Restatement (Second) of Contracts § 377); Quagliana, 538 P.2d 301, 307 (“Where a loss is caused by impossibility or frustration neither party can be compelled to pay for the other’s disappointed expectations, but neither can be allowed to profit from the situation; one must pay for what one has received.”).

¹⁰²Albre Marble & Tile Co. v. John Bowen Co., 155 N.E.2d 437, 439–40 (Mass. 1959) (citing Young v. Chicopee, 72 N.E. 63 (Mass. 1904)); see also Angus v. Scully, 57 N.E. 674, 674 (Mass. 1900) (“[W]here one is to make repairs or do any other work on the house of another under a special contract, and his contract becomes impossible of performance on account of the destruction of the house without any fault on his part, then he may recover for what he has done.”).

¹⁰³Albre Marble, 155 N.E.2d at 440; M. Ahern Co. v. John Bowen Co., 133 N.E.2d 484, 487 (Mass. 1956) (“ ‘It is enough that [a party] has actually received in part performance of the contract something for which when completed he had agreed to pay a price.’ ”) (citing 6 Samuel Williston & George Thompson, A Treatise on the Law of Contracts § 1976 (rev. ed. 1936)).

¹⁰⁴Boston Plate & Window Glass Co. v. John Bowen Co., 141 N.E.2d 715, 718 (Mass. 1957) (“In order for the plaintiff to recover for breach of the subcontracts, it must appear not only that the impossibility was caused by the defendant but also that, except for the defendant’s conduct, there would have been in existence valid and enforceable contracts.”).

¹⁰⁵Albre Marble, 155 N.E.2d at 441.

¹⁰⁶See supra notes 25–26, and accompanying text.

¹⁰⁷See supra note 5, and accompanying text.

¹⁰⁸See supra note 84, and accompanying text.

¹⁰⁹499 F. Supp. 53 (W.D. Pa. 1980).

¹¹⁰Id. at 56.

¹¹¹John P. Dawson, Judicial Revision of Frustrated Contracts: The United States, 64 B.U. L. Rev. 1, 28 (1984).

¹¹²Id. at 37 (“Nothing in their prior training as lawyers or their experience in directing litigation and giving coherence to its results will qualify them to invent viable new designs for disrupted enterprises, now gone awry, that the persons most concerned had tried to construct but without success.”).

¹¹³Robert A. Hillman, Court Adjustment of Long-Term Contracts: An Analysis Under Modern Contract Law, 1987 Duke L.J. 1.

¹¹⁴ALCOA, 499 F. Supp. at 56 (“ALCOA contends that [the price] was intended by the parties to reflect actual changes in the cost of the non-labor items utilized by ALCOA in the production of aluminum * * * and has in fact failed to so reflect such changes.”).

¹¹⁵Dawson, supra note 111, at 18 (“If the contract that was previously in force has through frustration ceased to exist, how can the parties to it be compelled to accept a ‘contract’ that is manufactured by a court to replace it?”).

¹¹⁶Hillman, supra note 113, at 7–9.

¹¹⁷See id. at 8, n. 43, citing Brief for Peabody Coal Co. at 21, Missouri Pub. Serv. Co. v. Peabody Coal Co., 583 S.W.2d 721 (Mo. Ct. App.) cert. denied, 444 U.S. 865 (1979) (only two utilities out of over forty refused to adjust after a coal supplier requested relief).

¹¹⁸Id. at 9.

¹¹⁹UCC § 2–615, cmt. 6. (“In situations in which neither sense nor justice is served by either answer when the issue is posed in flat terms of ‘excuse’ or ‘no excuse,’ adjustment under the various provisions of this Article is necessary * * *.”).

¹²⁰Hillman, supra note 113, at 29.

¹²¹See, e.g., Beaver Creek Coal Co. v. Nevada Power Co., 1992 WL 113747, at *4 (10th Cir. 1992) (“ALCOA has generally not been found convincing by other courts.”). But see Unihealth v. United States Healthcare, Inc., 14 F. Supp. 2d 623 (D.N.J. 1998); McGinnis v. Cayton, 312 S.E.2d 765 (W.Va. 1984) (Harshbarger, J., concurring). Professor White discusses the latter two cases and concludes that they fail to support court adjustment. See James J. White, A Footnote for Jack Dawson, 100 Mich. L. Rev. 1954, 1973–1977 (2002).

¹²²Wabash, Inc. v. Avnet, Inc., 516 F. Supp. 995, 999 n. 5 (N.D. Ill. 1981). See also Aultman Hosp. Ass’n v. Community Mut. Ins. Co., 544 N.E.2d 920, 924 (Ohio 1989) (“It is not the responsibility or function of this court to rewrite the parties’ contract to provide for [unforeseen] circumstances.”); Printing Indus. Ass’n v. International Printing & Graphic Commc’ns Union, 584 F. Supp. 990, 998 (N.D. Ohio 1984) (“This Court is respectfully at odds with the reasoning and result in ALCOA * * *. The willingness of courts to reform contracts on the basis of subsequent knowledge may undermine the policy of finality which is so essential and revered in contract law.”).

¹²³See, e.g., Exelon Generation Co. v. General Atomics Techs. Corp., 559 F. Supp. 2d 892, 903 (N.D. Ill. 2008) (distinguishing ALCOA because the Exelon contract had a fixed price without an escalation clause); Morgan Guar. Trust Co. of N.Y. v. American Sav. & Loan Ass’n, 804 F.2d 1487, 1494 (9th Cir. 1986) (“[P]arties that have entered a contract or made payments knowing that they were uncertain of material facts are barred from claiming resulting mistakes as a basis for equitable relief.”) (citing ALCOA, 499 F. Supp. at 68).

For an update on how courts are dealing with the court-adjustment issue, see Robert A. Hillman, Maybe Dick Speidel Was Right About Court Adjustment, 46 San Diego L. Rev. 595 (2009).