Under the doctrine of commercial frustration, if the occurrence of an event, not foreseen by the parties and not caused by or under the control of either party, destroys or nearly destroys the value of the performance or the object or purpose of the contract, then the parties are excused from further performance. If, on the other hand, the event was reasonably foreseeable, then the parties should have provided for its occurrence in the contract. The absence of a provision in the contract providing for such an occurrence indicates an assumption of the risk by the promisor. In determining foreseeability, courts consider the terms of the contract and the circumstances surrounding the formation of the contract.
Appellant landlord brought this action under a claim of breach of lease by appellee rehabilitation services organization. The circuit court granted judgment in favor of appellee rehabilitation services organization. The landlord appealed asserting that the trial court erroneously applied the law when it excused the organization's performance under the lease due to the doctrine of commercial frustration. The judgment was reversed as to the finding that the organization was excused from the lease under the defense of commercial frustration and affirmed in all other respects.
Whether the trial court erroneously applied the law when it excused performance under a lease due to the doctrine of commercial frustration?
The doctrine of commercial frustration grew out of demands of the commercial world to excuse performance under contracts in cases of extreme hardship. Under the doctrine, if the event was reasonably foreseeable, then the parties should have provided for its occurrence in the contract. The appellate court found that for the organization, which received funding from the state, the possibility that the funding may be reduced or even completely rescinded was foreseeable. It was certainly foreseeable that a drug and alcohol abuse treatment facility might encounter neighborhood resistance when attempting to move into a new location. The possibility that the organization's funding could be threatened was foreseeable. Yet, the organization did not provide for that possibility in the lease. Therefore, the organization assumed the risk that their funding may be threatened and that it might frustrate the purpose of the lease. Neither the value of the performance nor the purpose of the lease was destroyed. The finding that the landlord did not prove property damages to the building attributable to the organization was supported by substantial evidence.