Chase Precast Corp. v. John J. Paonessa Co.

Supreme Judicial Court of Massachusetts, Worcester
566 N.E.2d 603 (1991)

ELI5:

Rule of Law:

A party's contractual obligations are discharged under the doctrine of frustration of purpose when a supervening event, the non-occurrence of which was a basic assumption of the contract, substantially frustrates the party's principal purpose, unless the contract or surrounding circumstances indicate the party assumed the risk of that event.

Facts:

In 1982, the Commonwealth of Massachusetts contracted with John J. Paonessa Company, Inc. (Paonessa) for a highway reconstruction project that required installing precast concrete median barriers.
Paonessa then subcontracted with Chase Precast Corporation (Chase) to manufacture and supply 25,800 linear feet of these specific median barriers.
After construction began in the spring of 1983, local residents began protesting the removal of the grass median and the use of concrete barriers.
A citizens' group filed a lawsuit in early June 1983 to halt the installation of the barriers.
On June 7, 1983, Paonessa instructed Chase to stop producing the barriers in anticipation of a change order from the state.
On June 23, 1983, the Commonwealth's Department of Public Works officially deleted the concrete median barrier requirement from its contract with Paonessa as part of a settlement with the citizens' group.
Paonessa paid Chase for all the barriers that had been produced up to the stop-work order, and Chase suffered no out-of-pocket expenses for the unproduced portion.

Procedural Posture:

Chase Precast Corporation (Chase) sued John J. Paonessa Company, Inc. (Paonessa) for breach of contract in a Massachusetts Superior Court (trial court).
Paonessa filed a cross-claim against the Commonwealth for indemnification.
After a jury-waived trial, the Superior Court judge ruled in favor of Paonessa, finding its performance was excused by the doctrine of impossibility.
Chase appealed the trial court's decision to the Massachusetts Appeals Court (intermediate appellate court).
The Appeals Court affirmed the judgment for Paonessa but held that the more accurate legal basis was the doctrine of frustration of purpose.
Chase then applied for, and was granted, further appellate review by the Massachusetts Supreme Judicial Court (the state's highest court).

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Issue:

Does the doctrine of frustration of purpose excuse a subcontractor's performance under a supply contract when the government, as the ultimate owner of the project, eliminates the need for the supplied goods due to public protest?

Opinions:

Majority - Lynch, J.

Yes, the doctrine of frustration of purpose excuses the subcontractor's performance. When an unanticipated event, for which neither party is at fault and the risk of which was not allocated, destroys the object of the contract, the parties are excused from further performance. The court formally adopted the Restatement (Second) of Contracts § 265, which discharges a party's duties when its principal purpose is substantially frustrated by an event, the non-occurrence of which was a basic assumption of the contract. Here, the continued need for the median barriers was a basic assumption. The key question is whether Paonessa assumed the risk of the government eliminating the barriers. Although Chase was aware of the government's general power to alter contract quantities, the complete elimination of a major, standard item due to citizen protest was not a reasonably foreseeable contingency that the parties tacitly assigned to Paonessa. Therefore, Paonessa's primary purpose for the contract—to supply barriers for the state project—was frustrated, and its duty to purchase the remaining barriers from Chase was discharged.

Analysis:

This case is significant for formally adopting and clarifying the doctrine of frustration of purpose in Massachusetts, distinguishing it from the narrower doctrine of impossibility. The decision establishes that foreseeability alone does not automatically allocate risk; courts must conduct a fact-intensive inquiry into the commercial circumstances to determine if the parties tacitly assigned the risk of a specific, purpose-destroying event. This precedent provides a crucial defense in contract disputes, particularly for contractors and subcontractors involved in government projects, where the ultimate purpose of their agreements can be unilaterally altered by a government entity. It shifts the focus from whether performance is physically possible to whether the underlying value and purpose of the performance have been destroyed by an unforeseen event.

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