Western Properties v. Southern Utah Aviation, Inc.
1989 Utah App. LEXIS 95, 111 Utah Adv. Rep. 61, 776 P.2d 656 (1989)
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Rule of Law:
A party's contractual duties may be discharged under the doctrines of impossibility and frustration of purpose if a supervening, unforeseen event, for which the contract does not allocate risk, makes performance impossible or pointless and occurs without the fault of the party seeking discharge.
Facts:
- Western Properties leased vacant land at the Cedar City Airport from Cedar City.
- On March 6, 1985, Western Properties subleased a portion of the land to the defendants for a 15-year term.
- The sublease contained a covenant requiring the defendants to construct a maintenance building on the premises.
- The maintenance building was to become the property of Western Properties upon termination of the sublease.
- The defendants applied to Cedar City for the necessary site plan approval to construct the building but had not obtained it by the time of trial.
- Cedar City itself had not approved a master plan for the airport.
- On June 27, 1986, the defendants defaulted on their rent payments and abandoned the property without ever having constructed the building.
Procedural Posture:
- Western Properties sued the defendants in the trial court for unpaid rent and for breach of the covenant to construct a building.
- The trial court granted partial summary judgment to Western Properties, awarding it rent that had accrued up to the date of abandonment, June 27, 1986.
- Following a trial on the remaining issues, the trial court dismissed Western Properties’ claims for additional rent and for damages related to the unbuilt building.
- Western Properties, as appellant, appealed the trial court's final judgment dismissing its claims to the intermediate appellate court.
- The defendants, as cross-appellants, appealed the trial court's earlier grant of partial summary judgment against them.
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Issue:
Does a sublessee's inability to obtain necessary government approval to construct a building, through no fault of their own, excuse their contractual obligations to build the building and pay rent under the doctrines of impossibility and frustration of purpose?
Opinions:
Majority - Dean E. Conder
Yes. A sublessee's inability to obtain necessary government approval for construction, when it is an unforeseen event that is not their fault, excuses their contractual duties under the doctrines of impossibility and frustration of purpose. The court first rejected defendant Nichols's claim that he was not bound by the contract, holding that a party who signs a contract has a burden to understand its terms and cannot later claim ignorance as a defense. Turning to the main issue, the court found that the parties tacitly assumed Cedar City would approve the construction, but the contract did not allocate the risk of non-approval. The city's failure to grant approval was an unforeseen event that made the defendants' performance of the construction covenant impossible, and this impossibility occurred through no fault of the defendants. The court then applied the doctrine of frustration of purpose to the rent obligation, reasoning that without the ability to build and use the maintenance building, the entire purpose of leasing the undeveloped land was frustrated, making the promise to pay rent pointless and therefore also discharging that duty.
Analysis:
This case clarifies the application of the impossibility and frustration of purpose defenses, particularly when performance is contingent on government action. The decision refines the concept of an 'unforeseeable' event, shifting the focus from whether an event was objectively foreseeable to whether the parties subjectively foresaw and allocated the risk in their contract. This creates a precedent that can excuse contractual performance when a project is stymied by governmental inaction, provided the contract is silent on the matter and the party seeking discharge has acted with diligence. This ruling encourages contracting parties to explicitly allocate risks related to necessary third-party approvals.
