Class 12 Notes

Krell v. Henry

The formalities of the exchange are still possible. However, there was a basic assumption which the court relies.

Mel frank v. Di-chem
the change circumstance makes the exchange worth nothing.

 Burden on di-chem to prove that the lease is substantially worthless to you.


The Restatement of Contracts, Second § 265 defines frustration of purpose:

“

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 circumstances [of the contract] indicate the contrary.

”

A circumstance is not deemed to be a "basic assumption on which the contract is made" unless the change in circumstances could not have been reasonably foreseen at the time the contract was made. As a result, it is rarely invoked successfully. Successful invocations usually come in waves during times of substantial tumult, such as after the passage of pro, when prohibition bars and taverns no longer had a reason for their leases, or during major wars, when demand for many consumer goods and services drops far below normal. If successfully invoked, the contract is terminated, and the parties are left as they are at the time of the litigation.

Repudiation and retraction

When such an event occurs, the performing party to the contract is excused from having to fulfill his or her obligations. However, the repudiation can be retracted by the promising party so long as there has been no material change in the position of the performing party in the interim. A retraction of the repudiation restores the performer's obligation to perform on the contract.

If the promising party's repudiation makes it impossible to fulfill its promise, then retraction is not possible and no act by the promising party can restore the performing party's obligations under the contract. For example, if A promises to give B a unique sculpture in exchange for B painting A's house, but A then sells the sculpture to C before B begins the job, this act by A constitutes an anticipatory repudiation which excuses B from performing. Once the sculpture has left A's possession, there is no way that A can fulfill the promise to give the sculpture to B.

The question arises as to why any party would want to provide notice of anticipatory breach. The reason is that once the performing party is informed of the anticipatory breach, a duty is then created for the performing party to mitigate damages as a result of the breach. Another situation where anticipatory repudiation can occur is where a party has reason to believe the other party is not going to perform and requests reasonable assurances that the other party will perform (see UCC 2-609(1)). If such reasonable assurances are not given, it will constitute anticipatory repudiation, for which the performing party has various remedies, including termination. However, anticipatory repudiation only applies to a bilateral executory contract with non-performed duties on both sides. Additionally, the repudiation must be unequivocal.

A repudiation can be effective so long as:
1) The other party has relied on the repudiation
2) There was no communication from seller treating this as a repudiation
This protects seller from the retraction of the repudiation. 
There is still a risk of the letter not being determined by the court as a repudiation.
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