Citation. 776 P.2d 656 (Court of Appeals Utah, 1989)
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Brief Fact Summary.
Two parties entered into a 15 year sublease that also required the sub-lessor to construct maintenance buildings on the premises. Without permits from the relevant city, the requisite buildings could not be constructed.
Synopsis of Rule of Law.
An obligation is deemed discharged under the defense of impossibility "if an unforeseen event occurs after formation of the contract and without fault of the obligated party, which event makes performance of the obligation impossible or highly impracticable."
The trial court awarded the Plaintiff, Western Properties (the "Plaintiff"), certain amounts of accrued rent. The Plaintiff appeals this award on the grounds that it is entitled to more rent and monies for the construction of maintenance buildings. The Plaintiff leased certain vacant land at the Cedar City Airport from Cedar City and subleased that land to the Defendants, Southern Utah Aviation, Inc. (the "Defendants"), for a 15-year term beginning March 6, 1985. A covenant in the lease required the Defendants to "construct on the premises maintenance buildings", which would become property of the Plaintiff when the sublease expired. Cedar City approved the sublease, but never approved plans for the maintenance buildings to be built. On June 27, 1986, the Defendants defaulted on the sublease without ever building a maintenance building. The Plaintiff brought suit for unpaid rent and the amount the maintenance buildings would have been worth following the fifteen year sub-lease.
Are impossibility and or frustration valid defenses in this action?
An obligation is deemed discharged under the defense of impossibility "if an unforeseen event occurs after formation of the contract and without fault of the obligated party, which event makes performance of the obligation impossible or highly impracticable." The court recognized, "[p]arties are ordinarily thought to have made certain assumptions in visualizing their agreement, and those assumptions comprise part of the basis and extent of their assent. The impossibility defense serves to prevent enforcement where those assumptions, and hence, the parties assent, prove to be faulty." Frustration of purpose is different from impossibility in that performance of the process "rather than being impossible or impracticable, is instead pointless." The court found that the parties seemed to implicitly agree that Cedar City would allow for the maintenance building to be built. There is no contingency in the lease for if the Cedar City does not approve the building. Therefore, "the failure of the City to approve development of the land is an eventuality sufficiently unforeseen for application of the impossibility defense." Additionally, the court observed there were no facts suggesting that the defendant were not diligent in attempting to seek approval from the city or in any way at fault for the lack of approval. The court concluded that the Defendant's obligation to construct the maintenance building was discharged when their obligation became impossible. The court also concluded that "[t]here was no point in leasing this land once its development became impossible." As such, the Defendant's obligation to pay rent was also discharged.
This case offers a good discussion about the differences between impossibility and frustration of purpose.