Impossible!

1. Impossible! Prof. Merges – Contracts April 25, 2011

2. Tomorrow’s assignment • Swift Canadian – page 858, not page 834

3. Stees v. Leonard • “Pacta sunt servanda” • The K must be served (or honored) • Risk of “latent defects” must fall on the contractor

4. § 152. When Mistake Of Both Parties Makes A Contract Voidable (1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.

5. (2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

6. [M]arket conditions and the financial situation of the parties are ordinarily not such assumptions, and, generally, just as shifts in market conditions or financial ability do not effect discharge under the rules governing impracticability, mistakes as to market conditions or financial ability do not justify avoidance under the rules governing mistake.

7. Illustration 1 A contracts to sell and B to buy a tract of land, the value of which has depended mainly on the timber on it. Both A and B believe that the timber is still there, but in fact it has been destroyed by fire. The contract is voidable by B.

8. Why doesn’t financial situation of the parties count as “basic”?

9. § 154. When A Party Bears The Risk Of A Mistake A party bears the risk of a mistake when (a) the risk is allocated to him by agreement of the parties, or (b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or (c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

10. The seller of farm land generally cannot avoid the contract of sale upon later discovery by both parties that the land contains valuable mineral deposits, even though the price was negotiated on the basic assumption that the land was suitable only for farming and the effect on the agreed exchange of performances is material. In such a case a court will ordinarily allocate the risk of the mistake to the seller, so that he is under a duty to perform regardless of the mistake.

11. Least cost avoider: expertise 5. A contracts with B to build a house on B's land. A and B believe that subsoil conditions are normal, but in fact some of the land must be drained at an expense that will leave A no profit under the contract. The contract is not voidable by A, because the court will allocate to A the risk of the mistake.

12. Quitclaim deed example R2 154, ill. 1. A contracts to sell and B to buy a tract of land. A and B both believe that A has good title, but neither has made a title search. The contract provides that A will convey only such title as he has, and A makes no representation with respect to title. In fact, A's title is defective. The contract is not voidable by B, because the risk of the mistake is allocated to B by agreement of the parties.

13. Watkins & Son v. Carrig • P. 821, Intro to Section 2. • Expertise of cellar excavator means that party bears the risk of problems

14. 2 Fabled Cases • Wood v. Boynton, “the diamond in the rough” • Sherwood v. Walker, “the pregnant cow case”

17. Wood v Boynton • Not a mistake in the thing delivered – it was the stone the parties had contracted for • No rescission of the K based on mutual mistake

18. Wood • Notice: this particular jeweler credibly testified that he did not know the value of the stone • Both parties understood that the transaction involved the same stone: no mistake about the existence or identity of the stone

20. I was a mistake!

21. Sherwood v. Walker • Both parties assumed the cow was sterile; both were mistaken • “Different cow” or “same cow, just a disagreement about qualities or features

22. Reconciling Wood and Sherwood • Price/value ratios very different in the 2 cases • Cow in Sherwood priced so as to show basic assumption (sterile) • Not so in Wood: fair price for value of unknown type of stone

23. Impossibility - themes • History – Taylor • Drafting • UCC Impracticability

24. History • Paradyne v. Jane, 1647 • Cromwell’s army and pacta sunt servanda  Absolute rule . . .

25. Taylor v. Caldwell

27. Charles Spurgeon, 1834-1892

28. June, 1857: the big fire

29. Taylor v. Caldwell • Facts • History

30. What damages did Taylor seek?

31. What damages did Taylor seek? • Reliance, it looks like • Why not expectation?  Fera, “new business rule”

32. Taylor v. Caldwell • Not a lease – relevance?

33. Taylor v. Caldwell • Not a lease – relevance?  Paradyne and property principles

34. “without fault of either party” • What if head of Surrey Gardens had championed a successful law to prevent musical performances on Sundays?

35. Did the parties contemplate the event that occurred?

36. “The parties when framing the agreement evidently had not present to their minds the possibility of such a disaster, and have made no express stiplation with reference to it . . .”

37. Did the parties contemplate the event that occurred? • Apparently not • How would it be relevant if they had?

38. “Positive K to do a thing” K “to do a thing” is “positive and absolute”

39. “Positive K to do a thing” K “to do a thing” is “positive and absolute”  E.g., K to build a dance hall; no excuse if it burns down or proves impossible to build on that site

40. “Duty” vs. “condition” • Did party agree to do something, or was that something an assumed condition of what party actually agreed to do?

41. Did the parties contemplate the event that occurred? • Apparently not • How would it be relevant if they had?  Could be a basic assumption then; a contingency “asked and answered”; allocation of risk idea -- ?

42. Roman sources • The “romance” of the Latin civilians • Justinian’s code, and the Digests

43. Watson (ed.), The Digest of Justinian [revised English-language edition] (Philadelphia, PA: University of Pennsylvania Press, 1998), 2 vols. ISBN 0-8122-1636-9. Emperor 527-565

44. The Digest was assembled by a team of sixteen academic lawyers commissioned by Justinian in 533 to cull everything of value from earlier Roman law. It was for centuries the focal point of legal education in the West and remains today an unprecedented collection of the commentraries of Roman jurists on the civil law.

45. Bailments • “implied condition” analysis • Risk of loss in lent, borrowed, stored, and pledged assets • Continued existence of asset is an assumption of the parties

46. § 261. Discharge By Supervening Impracticability Where, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

47. Illustration 1 On June 1, A agrees to sell and B to buy goods to be delivered in October at a designated port. The port is subsequently closed by quarantine regulations during the entire month of October, no commercially reasonable substitute performance is available (see Uniform Commercial Code § 2- 614(1)), and A fails to deliver the goods. A's duty to deliver the goods is discharged, and A is not liable to B for breach of contract.

48. 2. A contracts to produce a movie for B. As B knows, A's only source of funds is a $100,000 deposit in C bank. C bank fails, and A does not produce the movie. A's duty to produce the movie is not discharged, and A is liable to B for breach of contract. 3. A and B make a contract under which B is to work for A for two years at a salary of $50,000 a year. At the end of one year, A discontinues his business because governmental regulations have made it unprofitable and fires B. A's duty to employ B is not discharged, and A is liable to B for breach of contract. 4. A contracts to sell and B to buy a specific machine owned by A to be delivered on July 30. On July 29, as a result of a creditor's suit against A, a receiver is appointed and takes charge of all of A's assets, and A does not deliver the goods on July 30. A's duty to deliver the goods is not discharged, and A is liable to B for breach of contract.

49. Force MajeureClauses

50. General rule • If parties say “seller is not liable and K terminates” in event of a strike, what happens if strike occurs?