Does a government order or other supervening event excuse performance under this contract?
Minnesota analyses the question under the Restatement (Second) of Contracts. The Supreme Court held in 2024 that the doctrine of temporary frustration of purpose delineated in Restatement § 269 is a justification for nonperformance recognized under Minnesota law in certain circumstances, and that §§ 265 and 269 are the appropriate frameworks for permanent and temporary frustration respectively. The § 265 test requires the asserting party to prove three elements: that its principal purpose in entering the contract is substantially frustrated, without its fault, by the occurrence of an event the nonoccurrence of which was a basic assumption on which the contract was made; a 'principal purpose' is one so completely the basis of the contract that, as both parties understand, without it the transaction would make little sense. Temporary frustration only SUSPENDS the asserting party's duty rather than discharging remaining duties, and obligations are discharged only if performance afterwards would be 'materially more burdensome', which requires more than inconvenience or increased costs.
The trap
The remedy, not the elements, is where this argument usually dies, and a COVID-era closure is the worked example. In Fitness International the tenant could not operate its health club for about 3.5 months under executive orders, and still lost: even assuming the other elements, its rent obligation was merely delayed, and once the closure ended all rent became due. Two limits the opinion states itself. The Court expressly did not decide whether temporary frustration of purpose can support an affirmative breach-of-contract claim rather than only an affirmative defense. And it did NOT construe the lease's own force majeure clause as excusing rent: the clause appears in the opinion's statement of facts, and in footnote 7 the Court treats it as a provision that 'specifically contemplates the risk of “restrictive laws” affecting the contract and allocates that risk to the parties accordingly'. So no sentence here tells you how a Minnesota court reads your force majeure wording; it tells you what the background doctrine gives a party whose clause does not cover the event. What the Restatement text the Court adopted does say is that the discharge applies "unless the language or the circumstances indicate the contrary", so the clause's own words are the first place the doctrine can be switched off.
10 authorities
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
Expanding on that principle, we hold today that the doctrine of temporary frustration of purpose delineated in the Restatement (Second) of Contracts § 269 is a justification for nonperformance of a contract that is recognized under Minnesota law in certain circumstances. The approaches outlined in Restatement (Second) of Contracts §§ 265, 269 are appropriate frameworks to analyze a claim of permanent or temporary frustration of purpose, respectively.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
As set forth in the Restatement, the doctrine of frustration of purpose excuses performance under a contract in certain situations: 8 Where, after a contract is made, a party’s principal 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, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. Restatement (Second) of Contracts § 265 (Am. L. Inst. 1981). The Restatement approach essentially requires the asserting party to prove three elements: (1) the party’s principal purpose in entering the contract is substantially frustrated; (2) without their fault; (3) by the occurrence of an event, the nonoccurrence of which was a basic assumption on which the contract was made.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
A “principal purpose” is one that is “so completely the basis of the contract that, as both parties understand, without it the transaction would make little sense.” Id. at cmt. a. And for a frustration to be “substantial,” it must “be so severe that it is not fairly to be regarded as within the risks that [the asserting party] assumed under the contract.”
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
Notably, temporary frustration of purpose only suspends the asserting party’s duty, rather than discharging all remaining duties to perform.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
Contractual obligations are only discharged if performance would be “materially more burdensome” after the temporary frustration ceases. Id. “Materially more burdensome” performance requires more than inconvenience or increased costs.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
For the reasons stated below, we conclude that summary judgment was appropriately granted in favor of City Center. We recognize that the approaches outlined in the Restatement (Second) of Contracts §§ 265, 269 (Am. L. Inst. 1981), are appropriate frameworks to analyze a claim of permanent or temporary frustration of purpose. We have no need to decide, however, whether this permits temporary frustration of purpose to be used as the basis for a breach-of-contract claim and not only as an affirmative defense. Here, even assuming, without deciding, that Fitness was entitled to pursue a claim of temporary frustration of purpose that, if properly supported, would allow it to recover rent paid during the mandatory COVID-19 closure periods, Fitness has not established that its obligation to pay rent owed for the closure periods was discharged, rather than merely suspended. Accordingly, we affirm the decision of the court of appeals, but on different grounds.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
For a period of approximately 3.5 months in 2020, however, Fitness was not legally allowed to operate its health club and fitness center due to executive orders mandating closure of certain non-essential businesses to slow the spread of COVID-19.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
Fitness’s obligation to pay rent for the closure period was merely delayed by the temporary frustration.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
frustration caused by the mandatory closures ended and Fitness was allowed to legally operate its health club and fitness center on the property, all rent payments became due. On these facts, Fitness’s obligation to pay rent for the alleged period of temporary frustration—approximately March to June 2020 and November to December 2020—is not discharged. As a result, Fitness is not entitled to return of the rent payments made to City Center for the mandatory closure periods.
- caseMinn. No. A22-1057 (July 24, 2024)Fitness International, LLC v. City Center Ventures, LLCMinn.decided 2024
The words that state the rule
Here, Article XXII of the lease agreement negotiated by Fitness and City Center contains a force majeure clause that specifically contemplates the risk of “restrictive laws” affecting the contract and allocates that risk to the parties accordingly.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.