Frustration of Purpose/Impracticality Doctrine

What follows is an extended "copy and paste" quote from the (or one of) the leading cases in Washington that discusses the Frustration of Purpose/Impracticality Doctrine.  The case cite is noted below. 

Metropolitan Park Dist. v. Griffith, 106 Wn.2d 425, 723 P.2d 1093 (1986) recognized the defense of impossibility, citing Thornton v. Interstate Sec. Co., 35 Wn. App. 19, 666 P.2d 370, review denied, 100 Wn.2d 1015 (1983) which in turn cited Liner v. Armstrong Homes of Bremerton, Inc., 19 Wn. App. 921, 579 P.2d 367 (1978), as well as Restatement of Contracts §§ 454, 455, and 457 (1932).  Restatement  (Second) of Contracts (1981) has rewritten these sections and those pertinent here are as follows:

§ 261: 
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.

An introductory note to chapter 11 preceding § 261 states, at pages 309-10: 
An extraordinary circumstance may make performance so vitally different from what was reasonably to be expected as to alter the essential nature of that performance.  In such a case the court must determine whether justice requires a departure from the general rule that the obligor bear the risk that the contract may become more burdensome or less desirable. . . .  The question is generally considered to be one of law rather than fact, for the court rather than the jury. . . .
. . .
Usually the impracticability or frustration that is relied upon as a justification for non-performance occurred after the contract was made.

§ 265:  
Where, after a contract is made, a party's principal purpose is substantially frustrated 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 remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

Comment a to § 265 denotes the difference between the four preceding sections and § 265; namely, in § 265 there is no impediment to performance by either party.  It denotes the elements as: (1) the purpose that is frustrated must have been a principal purpose of that party making the contract, (2) the frustration must be substantial, (3) the nonoccurrence of the frustrating event must have been a basic assumption on which the contract was made, and (4)  neither the language nor the circumstances indicate the contrary. See Chicago, M., St. P. & Pac. R.R. v. Chicago & North Western Transp. Co., 82 Wis. 2d 514, 263 N.W.2d 189 (1978).

Restatement (Second) of Contracts (1981) denotes that the first Restatement of Contracts (1932) talked of impossibility, whereas the Restatement (Second) speaks in terms [***9]  of impracticability as distinguished from impracticable. 
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A mere change in the degree of difficulty or expense due to such causes as increased wages, prices of raw materials, or costs of construction, unless well beyond the normal range, does not amount to impracticability since it is this sort of risk that a fixed-price contract is intended to cover.

Restatement (Second) of Contracts § 261, comment d (1981).  Rather, impracticability has been described as extreme or unreasonable difficulty, expense, injury, or loss to one of the parties.
Here, we find the principal purpose of this contract was to purchase a hop allotment base provided and created pursuant to a hop marketing agreement.  As is evident when the marketing order was terminated, effective December 31, 1985, the value of that allotment decreased, assuming a bid of $ .50 fell to $ .05, i.e., one-tenth the bid price. We consider that a substantial frustration falling within the rule.

Although both parties were aware of the discussions pro and con over the past few years of continuation of the agreement, there is no question neither party knew of the impending termination. In fact, this record reflects the Secretary of Agriculture himself did not know the marketing order had been terminated by an assistant secretary until it was called to his attention.  Thus, we would find there was a basic assumption by the parties that the marketing order would remain operative.

While the Trust seeks to hold the growers to knowledge that the order could be terminated at any time, it takes no responsibility for the same knowledge.  Both parties are in the same business.  Both parties were aware from its inception the marketing  act could be terminated at the discretion of the Secretary of Agriculture.  Both parties were aware of the discussions that had been held; yet neither the Trust in its bid form nor the growers in their acceptance placed the risk on the other party or themselves in the event the marketing order was terminated. As noted in Restatement (Second) of Contracts § 261, comment c (1981): "If the supervening event was not reasonably foreseeable when the contract was made, the party claiming discharge can hardly be expected to have provided against its occurrence." We find without this basic assumption there would neither have been an offer nor an acceptance.  Thus, there being no language in the contract or bid forms for one side or the other to bear the risk of termination, we find none existed.  Further, as noted in § 265, comment a, HN5[ ] "the mere fact that the event was foreseeable does not compel the conclusion that its non-occurrence was not such a basic assumption."

* * * * 

Further, impossibility is not applicable if one considers true impossibility. Here, the Trust had allotment base to sell and, in fact, some growers paid the price for the allotment. So, there was no impossibility as to the Trust being able to deliver the hop allotment base and there is no showing the grower had an impossibility of payment.

Having decided the theory of impracticability is applicable to both pools, we affirm the order on summary judgment. ​

Source:  Wash. State Hop Producers Liquidation Trust v. Goschie Farms, 51 Wn.App, 484, 477-491 (1988).

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