56 Pages Posted: 26 Feb 2009
Date Written: January 21, 2009
Three fundamental concepts underlie the principles that should govern unexpected-circumstances cases. (1) A contract consists not only of the writing in which it is partly embodied, but also includes, among other things, certain kinds of tacit assumptions. (2) These assumptions may be either event-centered or magnitude-centered. (3) The problems presented by unexpected-circumstances cases should be viewed in significant part through a remedial lens. The principles that rest on these concepts can be broadly summarized as follows. A shared nonevaluative tacit assumption that a given circumstance will persist, occur, or not occur during the contract time should provide a basis for judicial relief where the assumption would have affected the promisor's obligations had it been made explicit. If the promisor was neither at fault for the occurrence of the unexpected circumstance, nor in control of the conditions that led to the occurrence, she should not be liable for expectation damages. The promisor should, however, be liable for restitutionary damages, because it would be unjust to allow the promisor to both be excused from performance and retain any benefits that she received under the contract. Alternatively, the promisor should be liable for reliance damages where she is at fault for the creation of the unexpected circumstance, but the fault is minor; where the promisor is in control of the conditions that led to the occurrence of the unexpected circumstances; or where an objective of the contract was to reserve for the promisor the promisee's time, labor, or productive capacity. A seller should also be entitled to judicial relief if as a result of a dramatic and unexpected rise in her costs, performance would result in a financial loss that is significantly greater than the risk of loss that the parties would reasonably have expected that the seller had undertaken. If, under such circumstances, the market value of the contracted-for commodity has risen in tandem with the seller's costs, the buyer should be entitled to the profit he would have made if a reasonably foreseeable increase in the seller's cost of performance, and a corresponding increase in the market value of the commodity, had occurred. In appropriate cases, courts should take into account gains and losses to both parties that proximately resulted from, or were made possible by, the occurrence of the unexpected circumstance.
Keywords: unexpected-circumstances cases, contracts
JEL Classification: K12
Suggested Citation: Suggested Citation
Eisenberg, Melvin A., Impossibility, Impracticability, and Frustration (January 21, 2009). The Journal of Legal Analysis, Vol. 1, No. 1, pp. 207-261, 2009. Available at SSRN: https://ssrn.com/abstract=1349482