7200 Scottsdale Road General Partners v. Kuhn Farm MacHinery, Inc.
184 Ariz. 341, 909 P.2d 408 (1995)
Rule of Law:
For a party's performance to be excused under the doctrine of frustration of purpose, the frustrating event must substantially destroy a principal purpose of the contract that was a basic assumption understood by both parties at the time of formation; mere economic unprofitability or a generalized, non-specific threat is insufficient.
Facts:
- On February 9, 1990, Kuhn Farm Machinery, Inc. ('Kuhn') signed a contract with Scottsdale Plaza Resort ('the resort') to hold a North American dealers' convention at the resort's facilities from March 26-30, 1991.
- Kuhn planned for its European personnel, who were most familiar with its new products, to play a primary role in presenting at the convention.
- In August 1990, Iraq invaded Kuwait, leading to the start of the Gulf War in January 1991.
- Following the start of the war, Iraqi officials made public threats of worldwide terrorism against the United States and its allies.
- Kuhn became concerned about the safety of air travel for its convention attendees, particularly for its European personnel.
- Due to these concerns and lower-than-expected registration from its dealers, Kuhn reduced its reserved room block in late January 1991.
- By mid-February 1991, several of Kuhn's top dealerships canceled their plans to attend the convention.
- On February 18, 1991, Kuhn unilaterally postponed the convention without the resort's agreement.
Procedural Posture:
- Scottsdale Plaza Resort sued Kuhn Farm Machinery, Inc. in an Arizona trial court for breach of contract.
- The resort filed a motion for partial summary judgment on the issue of liability.
- Kuhn filed a cross-motion for summary judgment, arguing its performance was excused under the doctrines of impracticability and frustration of purpose.
- The trial court granted summary judgment in favor of Kuhn.
- The resort, as the appellant, appealed the trial court's judgment to the Arizona Court of Appeals.
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Issue:
Does the general threat of terrorism associated with the Gulf War substantially frustrate the principal purpose of a contract to hold a corporate convention, thereby excusing the canceling party's performance?
Opinions:
Majority - Toci, Judge
No, the general threat of terrorism associated with the Gulf War does not substantially frustrate the principal purpose of the contract. For the doctrine of frustration of purpose to apply, the frustrating event must destroy a principal purpose that was mutually understood as a basic assumption of the contract. First, the court found no evidence that the resort knew or understood that the presence of Kuhn's European personnel was a 'principal purpose' of the contract; the contract itself never mentioned them. The purpose must be so central that both parties understood the transaction would make little sense without it. Second, the frustration was not 'substantial.' The threat to domestic air travel was slight, and over 100 dealers registered for the convention after the war began, demonstrating that the value of the resort's performance was not 'totally or nearly totally destroyed.' A contract becoming less profitable or uneconomical is not sufficient grounds for relief. Finally, Kuhn's subjective fear was not an objectively reasonable response to a specific threat that would justify cancellation under the related doctrine of 'apprehension of impossibility.'
Analysis:
This case significantly clarifies the high threshold required to successfully invoke the frustration of purpose defense. It establishes that the allegedly frustrated purpose cannot be merely one party's unilateral motive but must be a core purpose understood and shared by both contracting parties. The decision reinforces the principle that commercial contracts implicitly allocate risks, and events that make performance merely less profitable or more difficult, such as generalized security threats or decreased attendance, do not rise to the level of substantial frustration. This precedent protects contractual stability by severely limiting the ability of parties to escape obligations due to changed economic circumstances or subjective fears.
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