Washington State Hop Producers, Inc. v. Goschie Farms, Inc

Brief Fact Summary. Plaintiff Washington State Hop Producers, Inc. brought an action against Defendant Goschie Farms, Inc. to enforce the contract. Plaintiff appeals from a judgment of the Court of Appeals, which affirmed the trial court’s decision to grant summary judgment to Defendant.

Synopsis of Rule of Law. A contract may be rescinded under the doctrine of “frustration of purpose” by determining that the principal purpose of the party to enter into the contract was frustrated without fault of either of the contracting parties.

Facts. From 1965 until 1985, the United States Department of Agriculture (USDA) required hop growers to obtain Federal allotments in order to market their hops; this was called a hop base. Hop base became a scarce, expensive commodity and a secondary market developed for trading. Plaintiff was organized in 1979 to acquire, lease and sell federal hop base. Since the system restricted entry, the USDA considered making various efforts to change it, but by June 1985 substantial changes in the marketing order were not expected. On May 31, 1985, Plaintiff mailed invitations to bid on two pools of hop base for sale. On June 21, 1985, Plaintiff mailed notices of award to bids in the $0.5 to $0.76 range, including Defendant and other respondents. On June 27, 1985, the USDA terminated the marketing order effective December 31, 1985. Defendant refused to perform on the contract. Plaintiff was able to sell 50% of one of the pools for price of $0.7 per pound compared with earlier successful bids
of $0.6 per pound. Plaintiff brought an action to enforce the contracts. The trial court granted summary judgment to the Defendant. The Court of Appeals affirmed and Plaintiff appealed.

Issue. Whether Defendant is entitled to relief under the doctrine of frustration of purpose?

Held. Yes. Judgment affirmed.
The Restatement Second of Contracts states that the doctrine of discharge by supervening frustration occurs where a party’s principle purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, and thus his remaining duty to render performance is discharged unless the language or the circumstances indicate the contrary. The State of Washington has not previously adopted the Restatement Second’s doctrine of supervening frustration.
Under the formula, the purpose that is frustrated must be the principle purpose for making the contract. Here, the principle purpose of this contract was to purchase a hop allotment base provide and created pursuant to a hop marketing agreement. Since Defendant sought to purchase hop base, the inference is that future market access was the principle purpose for entering into the contract. It is clear that this purpose was frustrated due to the decline in value of hop allotments. However, the irrelevance of control of hop base after 1985 that supplies the real frustration of purpose.
Further, Plaintiff here did not allocate the risk to Defendant growers and Defendant did not include any allocating language in its acceptance. The termination here was unforeseeable. The Restatement Second states that foreseeability is merely a relevant factor in determining whether nonoccurrence of the frustrating event was a basic assumption of the frustrated party in entering the transaction. However, if the basic assumption is found, as it is here, the issue of forseeability becomes irrelevant. The fact that it was not foreseeable does not argue the contrary conclusion. The language that suggests that unforseeability is a prerequisite of supervening frustration does not apply in this case. Forseeability of a possible frustrating event is meaningful only where the party seeking relief could have controlled could have controlled the language of the contract to allocate the risk. Here, exclusive control of the contract was in the hands of Plaintiff, and Plaintiff did not do alloca
te such risk.

Discussion. This case is one of the rare cases granting relief under the doctrine of frustration of pur