Brief Fact Summary.
Lindner sued Meadow Gold Dairies, Inc. for breach of contract when Meadow Gold Dairies, Inc. failed to pay to pay liquidated damages due to the early termination of a lease agreement.
Synopsis of Rule of Law.
A contract is voidable under the doctrine of frustration of purpose if: (1) a purpose of the contracting party was frustrated, (2) there was substantial or severe frustration, (3) the event that caused the frustration was not foreseeable.
In the absence of controlling state law, a federal court sitting in diversity must use its own best judgment in predicting how the state's highest court would decide the case.View Full Point of Law
Lindner leased property in Hawaii to Meadow Gold Dairies, Inc. (MGD). The lease allowed MGD to renew the lease for up to fifteen years and required MGD to pay up to five years of the current price of rent if MGD terminated prior to the expiration of the lease. MGD assigned the lease to Southern Food Group, L.P. (SFG), but Meadow Gold remained liable under the lease. Before the renewal, Mandalay Properties Hawaii, Inc. (Mandalay) purchased property near MGD called Tara Plantation, designed to be a home for Peter Guber (Guber). MGD closed the farm and terminated the lease 13 years early after Guber complained of contamination of his land from the dairy farm. Lindner sued MGD and SFG for breach of contract when MGD did not pay the liquidated damages. Lindner moved for summary judgment.
Whether a contract is voidable under the doctrine of frustration of purpose?
Yes. Lindner’s motion for summary judgment is granted. Mandalay Properties purchased the parcel of real estate neighboring MGD prior to MGD’s renewal of the lease. Similarly, alleged changes in environmental laws coupled with a nearby property owner’s dissatisfaction with MGD does not relieve MGD of their obligation to the lease or the liquidated damages clause.
In order for the frustration of purpose to be considered severe, the frustration must not align with risks that were assumed under the contract. Inconvenience and unprofitability do not satisfy the doctrine of frustration of purpose. Previously enacted federal law is also not considered a severe frustration of purpose.