Go to Database Directory || Go to Bibliography
Search the entire CISG Database (case data + other data)

Saggi, Conferenze e Seminari 20. Reproduced with permission of Centro di studi e ricerche di diritto comparator e straniero, diretto da M.J. Bonell

Hardship and its Impact on Contractual
Obligations: A Comparative Analysis

Joseph M. Perillo
Roma (April 1996)

In the conceptualization of the common law, "hardship" is not a juridical concept. It is a word that describes a fact. In general, the common law of contracts shows little compassion for the hardships created by contractual obligations. Total impossibility or total frustration [1] of the purpose of the contract may be the basis of relief. Growing out of these two concepts -- impossibility and frustration -- there is also a slow and hesitant growth of a doctrine of impracticability which may eventually achieve importance in mitigating the rigid application of the maxim, pacta sunt servanda. Although generous terms for the reorganization of a company in a bankruptcy proceeding sometimes substitutes for a doctrine of hardship,[2] it is clear that there is no full analogue to the concept of onerosità as it appears in the Italian Codice civile or in the UNIDROIT Principles of International Commercial Contracts. Both of these authorities divide what I call hardship into two separate compartments: impossibility and hardship. Thus, unlike in common law systems, "hardship" exists as a legal concept as well as a factual statement. The drafters of the Codice civile recognized the intimate relationship between the two categories by placing them in the same chapter of the Codice.[3]

First, to the extent it is relevant to the present-day common law, I will discuss the development of the common law doctrines of impossibility and frustration. As a starting point, we may go back to the [page 1] year 1647 and the case of Paradine v. Jane.[4] This was an action by the landlord for rent. In defense, the tenant answered that he had been ousted from possession by the King's enemies, led by a foreign prince, these events occurring during a civil war. The court held that the defense was not sustainable. The court explained its ruling with the following thoughts. First, the tenant would have been entitled to the benefits of unanticipated profits if there had been any. Therefore, the tenant should bear the burdens of unanticipated losses. Second, the actions of the King's enemies might have excused an obligation imposed by law, but it would not excuse a self-imposed obligation. This is because the tenant could have guarded against the risk by contract, that is, by negotiating an excuse to the effect that ouster from possession by the King's enemies would excuse the obligation to pay rent. In short, an obligation voluntarily assumed has greater rigidity than an obligation imposed by law.[5]

The case was not one of impossibility of performance. The obligation was to pay money. This was not made impossible by the occupation of the premises by the King's enemies, but certainly it is a hardship to pay rent for premises that one cannot occupy. It involves the frustration of the tenant's purpose. In the Italian conception, it involves the svilimento of the performance.

With few exceptions, the reasoning in this case continued to be followed for two centuries, and indeed, its spirit is very much alive. Foreign observers have noted the extreme length of many contracts drafted by American lawyers. To counteract the limited ability of parties to foresee the problems that may interfere with the successful performance of their contracts, American lawyers are likely to draft extremely lengthy documents foreseeing every possible calamity that was ever contained in Pandora's box.[6]

Despite the harsh and strict rule of Paradine v. Jane, two exceptions of a general nature were created at an early date. Today we place those exceptions under the general heading of impossibility [page 2] of performance, although they differ in some respects from other cases of impossibility. These involve (1) the death or disability of a person and (2) supervening legal prohibition. As to the first of these exceptions, death or disability of a contracting party does not in itself excuse nonperformance. The exception involves the death or disability of a person whose personal performance is required under the contract. This person may be, but is not necessarily, a contracting party. One may question whether this is indeed a hardship case. Of course, it would be a burden on the estate of the deceased if it were made to pay damages for non-fulfillment of the contract. On the other hand, it may be equally hard on the disappointed party not to be made whole where it may have incurred costs in reliance on the contract. The second exception that was created in early times involves impossibility caused by a supervening change in the law that makes performance illegal. Again, the legal system could have chosen to require that damages for nonperformance be paid by the party whose performance has become impossible.[7] However, it chose not to. Note that although these two categories -- supervening illegality and supervening death or disability -- are treated in the common law system under the heading of impossibility of performance, the question of foreseeability is not usually probed, whereas in most other cases of impossibility foreseeability is a key issue. In cases of death, it is obvious that foreseeability exists in the case of all human beings. Thus, an inquiry into foreseeability would be incoherent. In cases of supervening illegality, it is the rare case that probes the issue of foreseeability.

Aside from these two general exceptions there was one very interesting, forward-looking, brilliantly analyzed, but isolated case decided in Pennsylvania in 1787.[8] This was another landlord-tenant case. The lease between the landlord and the tenant required the tenant to pay rent and keep the premises in good repair. Then came the American Revolution. The British army occupied the City of Philadelphia where the premises were located, and for reasons not explained in the court decision, occupied and destroyed the building occupied by the tenant. [page 3] After the Revolution, the landlord sued for rent and for breach of the promise to repair. The liability for rent was clear under the common law system of precedent. Paradine v. Jane, decided 140 years earlier, had established the tenant's liability for rent despite its ouster from possession by enemy forces. But, as far as the breach of promise to repair, the court could find no precedent, and concluded that the failure to repair was excused, pointing out that inasmuch as no premium had been paid for the unexpected event that had occurred, the risks of the event could not have been within the contemplation of the parties, and therefore the tenant had no liability for the failure to repair. Note, that this was not a case of impossibility. Nor was it a case of frustration. This is a case of pure hardship, decided over 200 years ago, but it has stood like a monument in the Sahara, alone and unnoticed. It was another three-quarters of a century before the modern history of common law hardship began.

This history of the modern law of impossibility and frustration is generally traced to the English case of Taylor v. Caldwell.[9] This was a case of impossibility. The contract provided that plaintiffs, concert musician, would have the use of the defendant's music hall to give concerts on certain dates. The music hall was destroyed by fire before those dates. The musicians sued the music hall owner and the court ruled that the defendant owner of the music hall's nonperformance was excused from. The language was much like the language of the Pennsylvania case of some 76 years earlier. The destruction of the music hall was not "within the contemplation of the parties." Therefore, rules the court, there is an implied condition that the music hall would continue to exist. This case ushers in the general doctrine of impossibility of performance into the common law.

Note various things about this case. First, the use of the terminology, "contemplation of the parties," bears an uncanny resemblance to the language of the Pennsylvania case of 1787. What is the source of this phraseology? It bears the earmarks of the French scholar, Joseph Pothier, who uses this phrase time and again in his treatises on obligations and sales. In fact, Pothier is twice cited in the course of the opinion. A second observation is the implication of a condition that the music hall would continue to exist is clearly a fiction. [page 4] A Scottish judge explained the fictional nature of the condition by this illustration.[10] Suppose a milkmaid has a contract with many residents of a village to supply them daily with milk. One day, a travelling circus passes through the village and a tiger escapes. The authorities warn the villagers against the risk of going about their normal business outdoors. The milkmaid will be excused from delivering milk, but is it really because there is an implied condition to the effect that "tiger days are excluded?" Of course not. It is almost inconceivable that any of the parties gave any thought to a problem with tigers. It is the law that supplies the condition. (Parenthetically, I note that the category of an excuse by death or disability has been expanded to include the reasonable apprehension of danger to health or safety). In the United States, we no longer speak in terms of implied conditions in cases of this sort; we use the term "constructive condition." The condition is constructed by the court, by the law, if you prefer. The English courts also no longer talk in terms of an implied condition.[11]

A third comment on Taylor v. Caldwell is that the soundness of the decision is open to question. An important strain of economic thinking about law argues that the risk of impossibility should be allocated to the superior risk bearer,[12] because that party is often better able to prevent the happening of the risk, often by physical means, as by guarding property that is subject to loss by fire, and installing sprinkler and alarm systems, and almost always by legal planning, by insuring or by hedging. On the facts of Taylor v. Caldwell, clearly the owner is the superior risk bearer, not the travelling musicians. The owner had a better opportunity to prevent or control the fire. (At the relevant time, the owner could have insured against the loss to the building, but it is doubtful whether business interruption insurance was available in the 1860's to either of the parties.) Thus, under the thinking of this dominant strain of law and economics, the defendant, as the superior risk bearer, should have borne the loss. [page 5]

My fourth comment is this -- even if the defendant should have been excused because of the destruction of the music hall, the financial position of the parties ought to have been adjusted on an extra-contractual basis. The musicians had expended money for advertising the concerts and for preparation for performance. Under a broad view of quasi-contractual recovery, they should have been awarded a judgment for these sums to restore the status quo ante. Instead, the entire risk of the fire, as it affected this contract, was allocated to them. In England, it was not until 1943 that legislation was enacted to permit the court to adjust the rights of the parties in a case of impossibility, essentially on the basis of unjust enrichment.[13] Even under this legislation, the plaintiffs would have been unsuccessful because the plaintiff's expenditures did not benefit the defendants. American cases, without the benefit of legislation, would not only compensate the plaintiffs for any benefits they had supplied, but also, where equitable, for any reasonable and foreseeable expenditures that could not be recaptured that they may have made in reliance on the contract.[14]

Whatever the merits of the decision on the specific facts of Taylor v. Caldwell, it opened a new era in which impossibility and perhaps hardship that falls short of impossibility could result in a discharge of the contract, and perhaps even an adaptation of the contract. A second major development in the common law treatment of hardship occurred when the doctrine of frustration of purpose was recognized in England in cases arising from the cancelled coronation of King Edward VII. The coronation was planned as the show of the century. Processions, regattas, and spectacular fireworks and elegant galas were planned. Mr. Henry agreed to pay 75 to Mr. Krell for the use of his apartment for two days during the daylight hours only. Mr. Henry's purpose was to view the coronation processions that were to unfold on the street below and presumably to share the view in festive fashion with his guests. Not only did Mr. Krell know this purpose, but had advertised the premises as suitable for that purpose and doubtless could not have found a prospect for licensing the use of the apartment for two days (daylight hours only) at anything near the price of 75 but for the coronation processions that were planned. Mr. Henry makes part payment of one-third of the price. [page 6] The King became very ill; the coronation was postponed. Mr. Henry refused to pay the balance and Mr. Krell sued for payment. The court held that the contract was terminated by the unexpected cancellation of the coronation.[15] Note that this is not a case of impossibility; rather, it was a case where the plaintiff's performance had become totally useless to the defendant, or to anyone else for that matter. Of course, it will frequently happen that a promised performance will become totally useless to a purchaser. Consider a contracted-for wedding dress where the prospective husband is killed in an accident before the wedding. Clearly, the frustration defense would not be available to the bride. Many explanations can be given for this. My own is this: there is no unjust enrichment in the case. The tailor who contracts to make the dress employs his or her usual skill, usual labor and usual materials.[16] The licensor of the apartment to view the coronation is, however, charging a very high rate for an extraordinary use of the apartment and this extraordinary use has become worthless. Remember, also, that the King will recover and will be crowned on some other day and the apartment will again command a high rate.

Before updating the common law approach to hardship, I will turn to the Italian Codice civile; first, to its provisions with respect to impossibility. Having read the provisions and some of the doctrinal discussion of them, I am struck by the great similarity between the Italian legislation, American case law and the American Uniform Commercial Code. In many respects there is a greater similarity between Italian and American law on the topic than between American and English law. In the Italian system, as in the American, impossibility is a simple fact that does not automatically excuse. The impossibility must not have been caused by the obligor.[17] It must have occurred before the obligor breached.[18] The obligor must not have assumed the risk either expressly, or implicitly. An implicit assumption of the risk usually occurs [page 7] where the risk is foreseeable.[19] Partial impossibility provides a partial excuse. However, the obligee can instead cancel the contract rather than accept partial performance.[20] Temporary impossibility provides a temporary excuse and arguably the obligee has the same right to cancel as in the case of partial impossibility.[21] In all of these rules, the American law is consistent with the Italian. On the question of restitution for the value of what has been received by the party who has the excuse, Italian and American law appear closer than American and English law. In England, in many circumstances where American law would grant restitution, the English court will leave the parties in the position in which the circumstances have brought them. English law lacks other elements of flexibility that United States and Italian law have. For example, if it is impossible for a seller to supply 100% of the goods contracted for, but can, for example, supply 60% of the goods it has contracted to supply to its customers, the seller is required to allocate a proportionate share to each of the parties with whom it has contracts for the sale of these goods, and in addition, at the seller's option, to other regular customers who are not under contract. English law does not provide any allocation mechanism.

The Italian legal system, like a number of others, separates the question of onerosità -- pure hardship -- from the question of impossibility. While the remedy for impossibility is an excuse for nonperformance, the remedy for onerosità [22] is either the termination of the contract or, instead, the equitable modification of the contract. In the English-language literature about onerosità, this modification is known as "adaptation" or "reformation" of the contract. Naturally, not all supervening hardship gives rise to a remedy. It does not apply to a contract that is purely aleatory in its nature or made so by agreement of the parties, nor does it apply where the event constitutes a normal risk of contracts of this type.[23] Moreover, the supervening hardship must be the result of events that are extraordinary and unforeseeable. If these requisites are met, the legislation calls upon the judge to weigh the relative values of the performances, or promised performances in a [page 8] contract, and, if they radically vary from what was expectable and foreseeable at the time of contracting, the obligor is excused unless the obligee is willing to modify the contract.

The question of foreseeability is a difficult one. Anyone who has read a bit of history or who has lived for three or more decades of the twentieth century can foresee, in a general way, the possibility of war, revolution, embargo, plague, terrorism, hyper-inflation and economic depression, among the other horrors that have afflicted the human race. If one reads science fiction, one learns of the possibility of new terrors that have not yet afflicted us, but involve possibilities that are not pure fantasy. The Italian Corte di Cassazione has ruled that foreseeability is a question of fact.[24] Whether this is a consistent position of the Italian courts is doubtful. At any rate, I quote from Sacco & DeNova,[25] who summarize some of the Italian cases:

"As to a contract made in 1914 to last 60 years, the outbreak of a war (or better, of a certain number of wars) was foreseeable and also foreseeable was the development of aerial arms and the resort to aerial bombardments. ... As to a contract made during the second world war, the protracted duration of that war was not foreseeable, nor were the proportions of its consequences measurable."

One can reflect on the soundness of such distinctions of fact made by the Italian courts. Similarly, one can reflect on the soundness of decisions of American courts to the effect that American participation in the second World War was foreseeable, despite the fact that the Japanese attack on Pearl Harbor totally stunned Americans and found our armed forces totally unprepared. Yet, American merchants were supposed to foresee the onset of American participation in the war. Also, the American courts ruled consistently that the closing of the Suez Canal in 1956 was foreseeable to merchants who relied on the canal route, although it seems not to have been foreseen by the Egyptians. It was again foreseeable in the 1967 when the second canal closing took place.

It is difficult to believe that judges in reviewing the "factual" question of foreseeability can refrain from taking into account the larger consequences of a finding of foreseeability. If, in one case, American entry into the second World War had been declared to be unforeseeable, [page 9] how many thousands, or tens of thousands of contracts would have to be dissolved because of impossibility or frustration? How many shipping and sales contracts would have been thwarted by the Suez closings? How broadly would international trade be disrupted and how much uncertainty would be injected into domestic and international trade? I suggest that it is no accident -- and I speak of the American and English cases only as I have not made a sufficient study of others -- it is no accident that the court is more willing to find an excuse where the supervening event has drastic consequences only for one contract or a small number of contracts than where the supervening event affects an enormous number of transactions.

Under the Italian system, the remedies for onerosità are not self-actuating. Of course, the parties may themselves negotiate a modification of the contract, but the party burdened by excessive hardship cannot cancel the contract but may ask the courts to dissolve the contract. The other party may avoid the dissolution of the contract by offering to modify the contract to take into account the supervening hardship. Presumably the party not burdened by the hardship could himself ask the court to suggest an adaptation that meets the economic realities.

Returning to the common law, the common law has no developed doctrine of dissolving or adapting a contract because of hardship, but in the United States, at least, the Uniform Commercial Code has accepted and enacted into positive law the almost totally undeveloped doctrine of "impracticability." Thus far, however, the mere lack of equilibrium between the contracting parties caused by supervening events has not been a ground for relief. The dramatic inflation during the period of the Vietnam War produced many cases, but no relief was supplied by the courts.[26] The convulsions in petroleum prices that drove up the price of petroleum products and the costs of energy, produced many cases, was relief rarely granted, and these rare cases are generally cited only to be criticized. The same lack of relief greeted the cases where coal prices tumbled when the petroleum market became relatively free of the control of the petroleum cartel. Other convulsions, such as the closure of the Suez canal in 1956 and again in 1967 produced no relief for those whose [page 10] performances became drastically more costly. What then is the role of the American concept of impracticability? The few cases that apply the doctrine beyond the cases of impossibility and frustration do so where the originally contemplated manner of performance fails and another must be used. Let me illustrate this with a tragic case from Alaska.[27] One of the steps in a construction subcontract in the Alaskan wilderness was to move a large quantity of stone from one side of a lake to the other. The anticipated mode of performance was to move the stones by truck over the lake when its surface froze. On the first attempt, the subcontractor lost a truck that fell through the ice into the water below. The driver, however, was saved. On the second attempt when the ice thickened further, the subcontractor lost two trucks and two drivers. It was not impossible to move those stones. The subcontract could have waited until the summertime, and then brought in a barge -- a kind of a boat that is used for river and lake transport -- and then move the stones over the water. This would have involved a large uncontemplated additional expense. The court held that the contract was discharged and the contractor was justified in refusing to render further performance. Cases of this sort have been few, but the outcome of the case is generally regarded as sound.

Would a mere huge increase in cost, without the requirement of a different mode of performance, be a sufficient ground for a finding of impracticability in American law? With the exceptions of a few cases that have been cited mostly to be criticized as aberrations,[28] the [page 11] American cases do not permit any excuse based on increased cost alone, even where the market is affected by unforeseen calamities. Yet, under Italian law, an arbitral decision has held that a 14% devaluation of the English pound sterling was a sufficient ground for the adaptation of a contract. Other cases involving less than a 100% increase in the foreseeable costs have resulted in adaptation. An official comment to the UNIDROIT Principles suggests that an alteration amounting to 50% or more of the cost or the value of the performance is likely to amount to a "fundamental" alteration justifying invocation of the doctrine of hardship.[29] It is hard to avoid seeing the Italian hand in this provision. How can one account for the differences between the common law and the approaches of some civil law countries -- I refer to Italy, Germany and Argentina to name but three of the legal systems that provide for the adaptation of contracts for hardship. One possible explanation is that the principal common-law countries -- England, The United States, Canada, Australia -- have not suffered from the unmanageable inflation that has ravaged so much of the Civil Law world, nor have the ravages of war as directly affected the performance of civil and commercial contracts in the common-law countries.

Yet, in the doctrinal literature in the United States there is some support for the adaptation of long term contracts [30] and there are cases that arguably take such a position, but, they were not decided by important courts, and, as I have indicated before, they are usually cited only for purpose of adverse criticism.

What are the bases of the excuses for impossibility, frustration, impracticability, or onerosità? What are the value judgments that have guided legislators and courts in these areas? In the common-law systems, [page 12] contract liability is no-fault liability, yet some leeway for an excuse has been allowed. Although in some civil law countries, fault is perceived to have a greater role in contract liability than in the common law, the discussions of these excuses do not seem affected in any important way by ideas related to fault or its absence.

One trend of thought about the foundations of these excuses stems from one of the principal underpinnings of contractual obligations. Contract liability stems from consent. If an event occurs that is totally outside the contemplation of the parties and the event drastically shifts the nature of foreseen contractual risks, is there truly consent? Under this line of thinking, one can infer that the parties did not intend that performance would have to be rendered if an unexpected event would create a radical change in the nature of performance. If this inference is sound, one can conclude that the contract did not cover the unexpected event that has occurred. Under this reasoning, the court must then supply a term to cover an omitted case. Thus viewed, relief for impossibility or hardship does not interfere with freedom of contract. If this is so, the next question is how is the court to fill the gap and provide for the omitted case? A useful analogy are cases decided on the basis of mistake (error) of fact. The distinction is that the doctrine of mistake is applicable only if their is a mistake as to a vital existing fact, while ordinarily impossibility, frustration and onerosità relate to future events. In cases of mistake, ideas of unjust enrichment are heavily involved. Before applying any relief based on mistake, one must search the facts for unexpected, unbargained for gain on the one hand and unexpected, unbargained for loss on the other. Notions similar to that of the civil law notion of lesione and common law notions of conscionability are also involved. It is unconscionably sharp practice to take advantage of the mistakes of fact made by the other contracting party. It may equally be deemed unconscionable to take advantage of a mistake as to the course of future events.

Involved are cultural beliefs about unjust enrichment and unjust impoverishment. These terms engage our cultural values. What may have been deemed unjust in the middle ages, when the very morality of making a profit was questioned is viewed differently today. Such values differ not only over time, but also over space. The morality and legitimacy of profit is viewed in one light in Beijing and in another in [page 13] Havana, and perhaps less dramatically, but still differently, in London than in Rome.

All contracts involve risks. Some contracts are almost purely aleatory. If one sells shares of stock on the stock exchange that one does not have -- the so-called "short sale" -- it is a contract of pure risk and I can conceive no circumstance (absent fraud or the like) in which a court should relieve the seller or buyer from a total loss even if unexpected and unforeseeable events disrupted the market. On the other hand, in the more typical contract involving the sale of goods or services, or the rental of real estate, each party expects to gain from the contract and each party understands that the other party also expects to gain. In such contracts, neither party expects to gain from the other's loss, although both realize that such an imbalance may occur. In the common law, several kinds of events produce an almost automatic excuse for nonperformance: death of a person who is to personally perform, supervening illegality of a performance, and the destruction of the subject matter. When one goes beyond these three categories, relief is most justified if unexpected events inflict a loss on one party and provide a windfall gain for the other or where the excuse would save one party from an unexpected loss while leaving the other party in a position no worse than it would have without the contract. That being said, relief in the common-law system is still limited to events which result in total or near total impossibility, or total or near total frustration, or fit a very narrow concept of impracticability. Under Italian law, the legislator and the courts have recognized that unusually high rates of inflation and unusual rises in the price of raw materials, such as petroleum, are grounds for dissolving or adapting contacts. The UNIDROIT Principles of International Commercial Contracts, which the United States and England have signed, but which are not positive law, adopt principles that are close to the positive law of Italy. Whether the courts of the common-law countries will follow the guide of the UNIDROIT Principles is a question that will receive no definitive answer for many years. Suffice to say that those of us from the common-law countries who have some acquaintance with the Italian Codice civile seem to reach the conclusion that we have something to learn from the Italian experience. [page 14]


FOOTNOTES

1. In England, the term "frustration" is used in a broader sense than in the United States. The English use "frustration" to encompass "impossibility" as well as the narrower usage of "frustration" in the United States. See generally, G.H. Treitel, Frustration and Force Majeure, London, 1994.

2. Even outside of bankruptcy, governmental pressures are sometimes applied to induce the renegotiation of contracts that have become overly burdensome. For a study of the renegotiation of debts owed by less developed countries to American lenders, see Philip J. Power, Sovereign Debt: The Rise of the Secondary Market and its Implications for Future Restructuring, 64 Fordham Law Review (forthcoming May 1996).

3. Book 4, title ii, chapter xiv.

4. Alyn 26, 82 Eng.Rep. 897 (K.B. 1647), also reported by Style 47, 82 Eng.Rep. 519.

5. An additional reason was that the tenant had an action over against the persons who ousted him from possession. Such a reason is not germane to most cases of alleged hardship.

6. My dictionary tells me that in Italian, Pandora's box is "il vaso di Pandora".

7. There is little room for this doctrine in American law. The United States Constitution restricts the ability of the constituent states of the union to interfere with the obligation of contracts. The Supreme Court has interpreted other provisions of the Constitution so as to restrict, although to a lesser extent, the ability of the Federal government to outlaw existing contracts.

8. Pollard v. Shaffer, 1 Dallas 210 (Pa. 1787).

9. 3 B. & S. 826, 122 Eng.Rep. 309 (K.B. 1863).

10. Lord Sands in Scott & Sons v. Del Sel, 1922 S.C. 592, 596-97, affirmed 1923 S.C. (H.L.) 37.

11. Ocean Tramp Tankers Corp. v. V/O Sovfracht, [1964] 2 Q.B. 226 (1963) (Denning, M.R.).

12. Richard Posner & Andrew M. Rosenfeld, Impossibility and Related Doctrines in Contract Law: An Economic Analysis, 6 Journal of Legal Studies 83 (1977).

13. Treitel, op. cit. at Section 15-044.

14. See John D. Calamari & Joseph M. Perillo, The Law of Contracts, 13-23 (3d ed. 1987).

15. Krell v. Henry, [1903] 2 K.B. 740 (C.A.).

16. An alternative unconvincing explanation is that the continued existence of the groom was not the basis on which the parties contracted. See John D. Calamari & Joseph M. Perillo, The Law of Contracts p. 560 (3d ed. 1987), citing to a teachers' manual by Professors Farnsworth and Young that is not in general circulation.

17. Rodolfo Sacco & Giorgio De Nova, Il Contratto, tomo secondo, Torino UTET, 1993, p. 652.

18. Ibid.

19. Id. At p. 653.

20. Id. at p. 654.

21. Id. at p. 653.

22. Codice civile arts. 1467-1469.

23. Codice civile art. 1469.

24. Cass. 4 Marzo 1981 n. 1528 (cost increases).

25. Sacco & De Nova, op. cit., p. 675.

26. Fairly typical is Laredo Hides Co. v. H & H Meat Products Co., 513 S.W.2dd 210 (Tex.Civ.App. 1974). The seller ceased delivery of cow and bull hides after the market price more than doubled for cow hides and more than tripled for bull hides. The seller's attorneys raised some defenses but none of them based on the greatly increased market price.

27. Northern Corp. v. Chugach Electric Assoc., 518 P.2d 76 (Alaska 1974).

28. Florida Power & Light Co. v. Westinghouse Electric Corp., 826 F.2d 239 (4th Cir. 1987), cert. denied 485 U.S. 1021 (1988), has been cited for this proposition, but I think incorrectly. The contemplated mode of disposing of spent nuclear fuel was unavailable. The excuse for non-performance seems to have been justified under a narrow concept of impracticability as in the Alaska case cited at note supra. Closer to the point is Aluminum Co. of America v. Essex Group, Inc., 499 F.Supp. 53 (W.D.Pa. 1980), described as "the most interesting and criticized impracticability decision of recent years -- [which] reformed a twenty-one year contract to process molten aluminum because of a defect in a price adjustment term." Mark P. Gergen, A Defense of Judicial Reconstruction of Contracts, 71 Indiana Law Journal 45, 56 (1995).

Squarely on point, but little noticed, is Moyer v. City of Little Falls, 510 N.Y.S.2d 812 (Sup.Ct. Herkimer Cty. 1986) (sanitation contract was discharged where 666% rise in landfill costs which rose because landfill operator attained a monopoly position by action of New York State in forcing competing landfills to close for environmental reasons).

A case that is close to point is an arbitration that is not reported except in newspapers. See Nicholas D. Kristof, Business and the Law, in New York Times, January 8, 1985, describing an arbitral decision. A long-term contract containing a clause choosing New York law was entered into for the sale of uranium to a Swiss utility. The utility was unable to get a permit to build a nuclear plant; also the market price of uranium fell drastically below the contract price. The arbitrators held that the contract was discharged. The inability of the utility to obtain a permit to build the plant triggered the doctrine of frustration. The arbitrators, however, based their decision on the combination of the denial of the permit and the drastic change in the market price.

29. UNIDROIT Principles of International Commercial Contracts, Art. 6.2.2, comment 2.

30. Most recently, see Gergen op. cit.


©Pace Law School Institute of International Commercial Law - Last updated December 15, 2009
Go to Database Directory || Go to Bibliography
Comments/Contributions