Adbar, L.C. v. New Beginnings C-Star
103 S.W.3d 799 (2003)
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Rule of Law:
The doctrine of commercial frustration does not excuse performance under a contract when the frustrating event was reasonably foreseeable at the time of contracting. A party is deemed to have assumed the risk of a foreseeable event if the contract does not provide for its occurrence.
Facts:
- New Beginnings C Star, a drug and alcohol rehabilitation provider, entered into a three-year lease with Adbar, L.C. for a building in St. Louis.
- Initially, a City zoning administrator indicated that New Beginnings' use of the property was permitted.
- After the lease was signed, Alderman Freeman Bosley, Sr., opposing New Beginnings' move into his ward, successfully lobbied the zoning administrator to reverse his decision and deny New Beginnings an occupancy permit.
- New Beginnings eventually obtained the permit through court action, despite continued interference from Alderman Bosley.
- Alderman Bosley then contacted a state representative and asked her to 'pull the funding' for New Beginnings.
- Subsequently, New Beginnings alleged that Michael Couty, the director of its state funding agency, threatened to rescind all state contracts if it moved into the leased location.
- Based on this alleged threat, New Beginnings' board of directors decided not to occupy the building.
- New Beginnings' state funding was never actually rescinded or reduced.
Procedural Posture:
- Adbar, L.C. filed a petition against New Beginnings C Star in trial court for breach of lease.
- New Beginnings asserted the defense of legal impossibility, and on the first day of trial, was granted leave to amend its answer to add the defense of commercial frustration.
- Following a bench trial, the trial court entered a judgment in favor of New Beginnings, finding its performance was excused by commercial frustration.
- Adbar, as the appellant, appealed the trial court's judgment to the Missouri Court of Appeals.
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Issue:
Does the doctrine of commercial frustration excuse a tenant's performance under a lease when political opposition and the mere possibility of funding loss, which are foreseeable risks, make achieving the lease's purpose more difficult but do not actually destroy its value?
Opinions:
Majority - Norton, J.
No. The doctrine of commercial frustration does not excuse New Beginnings' performance because the events that allegedly frustrated the purpose of the lease were foreseeable. The court reasoned that an organization receiving state funding should foresee the possibility that its funding could be reduced or rescinded. Likewise, it is foreseeable that a drug and alcohol treatment facility might encounter neighborhood and political resistance when moving to a new location. Because these events were foreseeable, and New Beginnings did not include a contractual provision to account for them, it assumed the risk. Furthermore, the purpose of the lease was not actually destroyed; New Beginnings' funding was never rescinded, and while political opposition made business more difficult, it did not destroy or nearly destroy the value of the performance or the purpose of the lease.
Analysis:
This case narrows the application of the commercial frustration doctrine in Missouri, reinforcing that it is a high bar to clear. The decision emphasizes the principle of foreseeability, placing the onus on contracting parties to anticipate and allocate known business risks within the contract itself. By classifying political opposition and funding instability as foreseeable for an entity like New Beginnings, the court signals that only truly unexpected, cataclysmic events can excuse performance, thereby promoting the certainty and enforceability of contracts.
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