Legal Brief: Week 05: 7200 Scottsdale Road General Partners v. Kuhn Farm Machinery

Fabrice Tshiyoyi Banyingela

Professor Michael Hales – BYU Idaho

Business Law 375

16 October 2021

7200 Scottsdale Road General Partners

v.

Kuhn Farm Machinery

 

Case Facts

On February 9, 1990, Kuhn Farm Machinery, Inc. ("Kuhn") and 7200 Scottsdale Road General Partners dba Scottsdale Plaza Resort (the "resort") entered into an agreement that Kuhn will hold its European personnel for the North American dealer’s convention at the resort from February 26, 1991, to February 30, 1991. Kuhn reserved 190 guest rooms and meeting for a budget of $8,000.

In order to protect itself, the “resort” included the following clauses in the contract:

·         If cancellation occurred between March 26, 1990, and August 26, 1990, the damages would be $75,000, equivalent to 50 percent of the anticipated group room, food, and beverage revenue.

·         If cancellation occurred between August 26, 1990, and December 26, 1990, the damages would be $112,000, equivalent to 75 percent of the anticipated group room, food, and beverage revenue.

·         If cancellation occurred between December 26, 1990, and March 26, 1991, the damages would be $150,000, equivalent to 100 percent of the anticipated group room, food, and beverage revenue.

However, the resort agreed to charge Kuhn an amount of ten percent or more for any decrease after January 25, 1991, in the reserved room block and will accept individual cancellation done up to seventy-two hours prior to arrival without penalty.

Six months after signed the contract, a crisis aroused when Iraq invaded Kuwait on August 2, 1990. A few days later, the United States sent troops to support Kuwait, and months later, the US’s allied joined the war. Iraqi’s high-ranking officials opted for a different fighting technique – terrorism. Their leader Saddam Hussein stated, “hundreds of thousands of volunteers . . . [would become] missile[s] to be thrown against the enemy . . ." and "the theater of operations would [include] every freedom fighter who can reach out to harm the aggressors in the whole world . . . .”

            Because many newspapers emphasized possible terrorist attacks, Kuhn and employees (Europeans) became reluctant to travel and fear for their safety especially within the American continent. This situation made Kuhn anticipate by reducing the rooms they have reserved two months prior to the due date by more than twenty-five percent. Kuhn then requested in writing to the “resort” that the convention’s date be rescheduled for the following year. Without waiting for the resort’s response, on February 18, 1991, Kuhn notified all potential participants about the postponement which broke down the rescheduling negotiation.

            The resort sued Kuhn for breach of contract, seeking the liquidated damages provided for in the agreement. The resort was not satisfied with Kuhn terrorist attacks’ phobia because approximately 150 of 190 dealers registered for the meeting signed up after the Operation Desert Storm attack on Iraq. Additionally, Kuhn’s request for a reduction of twenty-five percent of guest rooms was a sign that the convention will be taking place despite the terrorism threats.

    Kuhn argued that there was impracticability of performance and frustration-of-purpose due to the terrorism threats thus being discharged from the contract.   

The Issue

Considering the consequences of Operation Desert Storm and as performance became impossible, should the contract be discharged by operation of law for impracticability and frustration-of-purpose?

Rule

Impracticability may also give rise to discharge. Impracticability exists when there is a radical departure from the circumstances that the parties anticipated when they entered the contract. This is an equitable theory that holds that such a radical departure (often called “acts of God”) from the circumstances that it would be unjust to hold the parties to their original obligations. (Chapter 10 of the textbook).

            According to the Restatement written by Legal scholars to clarify common law on special areas such as contracts, “Impracticability of performance is utilized when certain events occurring after a contract is made constitute an impediment to the performance by either party.” This is applied to three categories: death (or incapacity of a performer), destruction, and prohibition (or prevention by law).

Application

The principal purpose of Kuhn entering the contract with the resort was a convention that will take place in the resort’s premises at which 190 guests and attended by European personnel. It is clear here that Kuhn was the only party in the contract who understood crucially that the success of this event was largely dependent on the attendance of the Europeans. And from Kuhn’s defense, there is no proof that it was impracticable to host the convention. Therefore, this case needs to categorize this case either as impracticability of performance or as a frustration of purpose – which is defined by the Legal Information Institute as “an excuse that can be used by a buyer for non-performance of contractual duties when a later and unforeseen event impedes the buyer's purpose for entering into the contract, and the seller at the time of entering the contract knew of the buyer's purpose.”  

Kuhn used terrorism threats as the purpose to reschedule (which later became a cancellation) the convention which was opposed by the resort that believed that those threats were merely normal in our modern world. So, Kuhn acted based on assumptions that frustrated its plans, but there is no proof as well that because an attack did not happen that Kuhn’s assumption should be neglected. But the fact that twenty-five percent of prospective participants only withdraw from attending, shows that the threat was not severe and the contract cannot be discharged.

Even though Kuhn canceled the show for the above-mentioned reason, there is no excuse for the performance of the contract with the resort since the US government took enough precautions to secure the country.

Ruling

Kuhn did not prove the impracticability of the contract because the resort was still a safe place to hold the convention and did not as well prove that if the convention took place despite the threats of terrorism, it was going to be unsuccessful with the withdrawal of twenty-five percent of participants. Therefore, the cancellation is not objectively a reasonable motive.

 

Reference

Michael H (2021). “Business Law.”

Brigham Young University - Idaho, pp. 73

The Legal Information Institute. “Frustration of Purpose”. 1992

https://www.law.cornell.edu/wex/defamation. (Accessed 16 October 2021)

The University of Athens. “7200 Scottsdale Road General Partners v. Kuhn Farm

Machinery”. 1995. https://eclass.uoa.gr/modules/document/file.php/LAW124/7200%20Scottsdale%20Road%20General%20Partners%20v%20Kuhn%20Farm%20Machinery%2C%20Inc.doc. (Accessed 16 October 2021)