Question

Val's Food signs a contract to buy 1,500 pounds of basil from Sun Farms, a small organic herb grower, as long as independent organization inspects and certifies that the crop contains no pesticide or herbicide residue. Val's has a contract with several restaurant chains to supply pesto and intends to use Sun Farms' basil in the pesto to fulfill these contracts. When Sun Farm is preparing to harvest the basil, an unexpected hailstorm destroys half the crop. Sun Farms attempts to purchase additional basil from other farms, but it is late in the season and the price is twice the normal market price. Sun Farms is too small to absorb this coast and immediately notifies Val's that will not fulfill the contract.

1. Suppose that Sun Farms supplies the basil that survived the storm but the basil does not pass the chemical-residue inspection. Which concept might allow Val's to refuse to perform the contract in this situation?

2. Under which legal theory or theories might Sun Farms claim that its obligation under the contract has been discharged by operation of law? Discuss fully

3. Suppose that Sun Farms contacts every basil grower in the country and buys the last remaining chemical-free basil anywhere. Nevertheless, Sun Farms is able to ship only 1,475 pounds to Val's. Would this fulfill Sun Farms' obligations to Val's? Why or why not?

4. Now suppose that Sun Farms sells its operations to Happy Valley Farms. As a part of the sale, all three parties agree that Happy Valley will provide the basil as stated under the original contract. What is this type of agreement called?

Answer 1

1. Suppose that the basil does not pass the chemical-residue inspection. Which concept discussed in the chapter might allow Val’s to refuse to perform the contract in this situation?

Ans. Failure of condition

2. Under which legal theory or theories might Sun Farms claim that its obligation under the contract has been discharged by operation of law? Discuss fully.

Ans. Under the legal theories of commercial impracticality and impossibility of performance

The legal doctrine of commercial impracticability is triggered when something happens that makes performance of a contractual duty excessively burdensome, unbearably difficult, or extremely expensive, for the party committed to such performance. Impracticability may become a credible defense to failure to perform duties under a contract, though these situations generally find themselves before a judge, whose duty it is to make a decision. Judging the impracticability of a situation can be difficult, as the matter deals with subjective issues as to the parties’ perceptions, expectations, and understanding of the facts, rather than the hard facts themselves.

Test for Impracticability

Judges in the U.S. judicial system use a test for commercial impracticability that consists of three facts:

1. Something must have happened which as assumed not to have occurred in making the original contract;
2. The occurrence must specifically make certain performance under the contract exceptionally difficult or expensive; and
3. The parties could not have reasonably foreseen that the problem could occur.

The doctrine of commercial impracticability relies on the assumption that, at the time the contract was made, the non-existence of the specific occurrence was a basic assumption central to performance under the contract, but which occurrence, however, unlikely, rendered compliance with certain terms unreasonably difficult or expensive.

3. Suppose that Sun Farms contacts every basil grower in the country and buys the last remaining chemical-free basil anywhere. Nevertheless, Sun Farms is able to ship only 1,475 pounds to Val’s. Would this fulfill Sun Farms’ obligations to Val’s? Why or why not?

Ans. Yes under substantial performance

4. Now suppose that Sun Farms sells its operations to Happy Valley Farms. As a part of the sale, all three parties agree that Happy Valley will provide the basil as stated under the original contract. What is this type of agreement called?

Ans. Delegation of duties