Finger 4: Defense to Non-Performance/Breach

1. Finger 4: Defense to Non-Performance/Breach Excuse by Failure of Presupposed Conditions ------------- Excuse by Impossibility/Impracticability/ Frustration of Purpose

2. UCC 2-615 Excuse by Failure of Presupposed Conditions [A party has a defense to non-performance] 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 or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

3. Elements ofExcuse by Failure of Presupposed Conditions [A party has a defense to non-performance] 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 or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

4. Excuse by Failure of Presupposed Conditions [A party has a defense to non-performance] 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 or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

5. Excuse by Failure of Presupposed Conditions [A party has a defense to non-performance] 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 or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

6. Excuse by Failure of Presupposed Conditions [A party has a defense to non-performance] 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 or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

7. UCC Element 1 [A party has a defense to non-performance] if performance as agreed has been made impracticable UCC 2-615 comment 3: The test of commercial impracticability (as contrasted with “impossibility” or “frustration”) has been adopted in order to call attention to the commercial character of the criterion chosen by this Article.

8. UCC Element 2 [A party has a defense to non-performance] by the occurrence of a contingency Contingency is beyond seller’s control Seller acted in good faith in response to the contingency

9. UCC Element 3 [A party has a defense to non-performance] by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made UCC 2-615 cmt. 4. A contingency which reflects a risk the business contract was intended to cover is not a contingency within this article. Risk must not have been “sufficiently foreshadowed at the time of contracting, unless not fairly regarded as part of the risks allocated by the contract. It must be a contingency “which alters the essential nature of the performance”; Cmt. 8 UCC 2-615 cmt. 4: Increased cost alone, a rise or a collapse in the market is not itself a justification.

10. UCC Element 4 governmental regulation 2-615 cmt. 10: A seller’s good faith belief in the validity of the regulation is the test

11. Restatement • A party has a defense to non-performance where an event makes the party’s purpose frustrated (265) or performance impracticable (261 ) or performance impossible (262, 263) or in non-compliance with governmental regulation (264) and the event occurs without his fault and the non-occurrence of the event was a basic assumption on which the contract was made.

12. Restatement • A party has a defense to non-performance where an event makes the party’s purpose frustrated (265) or performance impracticable (261 ) or performance impossible (262, 263) or in non-compliance with governmental regulation (264) and the event occurs without his fault and the non-occurrence of the event was a basic assumption on which the contract was made.

13. Restatement • A party has a defense to non-performance where an event makes the party’s purpose frustrated (265) or performance impracticable (261 ) or performance impossible (262, 263) or in non-compliance with governmental regulation (264) and the event occurs without his fault and the non-occurrence of the event was a basic assumption on which the contract was made.

14. Restatement • A party has a defense to non-performance where an event makes the party’s purpose frustrated (265) or performance impracticable (261 ) or performance impossible (262, 263) or in non-compliance with governmental regulation (264) and the event occurs without his fault and the non-occurrence of the event was a basic assumption on which the contract was made.

15. Restatement Element 1 • (a) an event makes the party’s purpose frustrated (265) and both parties understand that as the principal purpose • (b) performance impracticable (261 ) • (c) performance impossible (262, 263) • (d) in non-compliance with governmental regulation (264) cf. UCC Elements 1& 4 ; p.614 “mere” economic impracticality is no defense; contra UCC

16. Restatement Element 2 • A party has a defense to non-performance where an event occurs without his fault • cf. UCC Element 2

17. Restatement Element 3 • A party has a defense to non-performance where the non-occurrence of the event was a basic assumption on which the contract was made. • Cf. UCC Element 3 • See 265 cmt. a, ”not to be regarded as within the risks assumed . . . under the contract”; and occurrence is not to be allocated by the court to the party seeking relief.

18. 7200 Scottsdale Kuhn entered into a contract for bed and meeting rooms with Resort. The contract had penalties for cancelation. (COL/SOF/Party chosen remedy) The Gulf War made European convention delegates frightened to travel. These events were outside control of Kuhn. Without Europeans, Kuhn decides to cancel after failing to negotiate alternative with Resort. Resort sues for damages. Kuhn claims excuse t non-performance: Frustration & Impracticability.

19. 7200 Scottsdale – Element 1 Our purpose which was linking Europeans more closely to the company was frustrated when they could not travel and without the Europeans, the convention was no longer commercially practicable to hold.

20. 7200 Scottsdale – Element 2 The Europeans were prevented from attending by events outside our control and for which we had no responsibility – the government’s initiation of the Gulf War.

21. 7200 Scottsdale – Element 3 The ability of Europeans to fly to Arizona was a basic assumption of the contract because it is what made the convention desirable to hold in Arizona.

22. 7200 Scottsdale • Q 1: What was the event? (we begin here (Element 3) because we need to choose a contingency which can satisfy Element 2 and has consequences that satisfies Element 1 • According to the court, Element 3 was the “perceived risk of terrorism” (It was not our fault ( 2), and resulted in Europeans not coming yielding impracticability (1). • Court: Not a good faith (“objectively reasonable”) response to the event (Element 2) and lack of European attendance doesn’t rise to level sufficient to satisfy Element 1 (1a because both parties didn’t agree on European attendance as purpose and 1b/1c because they could have had convention, albeit less profitable, without the Europeans).

23. 7200 Scottsdale • Today, the court might have differently weighed Element 2 (i.e., taken threat of terrorism more seriously), but court might not have changed its mind about Element 1 (They can live without the Europeans). • Can you re-describe the facts (and assumptions and consequences) in another way? For example, does the Resort market its closeness to the airport?

24. 7200 Scottsdale and Good Faith • The Resort admits that Kuhn’s decision to cancel was in good faith (p. 613). • Why then didn’t the resort have a duty to accommodate Kuhn?