Chase Precast Corp. v. John J. Paonessa Co., Inc.

• Citation: 409 Mass. 371,566 N.E.2d 603
• Parties: CHASE PRECAST CORPORATION v. JOHN J. PAONESSA COMPANY, INC. et al. 1 Commonwealth, third-party defendant.
• Decision Date: 20 February 1991
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 603

566 N.E.2d 603

409 Mass. 371

CHASE PRECAST CORPORATION v. JOHN J. PAONESSA COMPANY, INC. et al. ¹

Commonwealth, third-party defendant.

Supreme Judicial Court of Massachusetts,

Worcester.

Argued Nov. 7, 1990.

Decided Feb. 20, 1991.

David A. Talman, Worcester, for plaintiff.

John J. Spignesi, Boston, for John J. Paonessa Co., Inc.

Gerald K. Kelley, Asst. Atty. Gen., for Com.

Before LIACOS, C.J., and WILKINS, ABRAMS, LYNCH and GREANEY, JJ.

LYNCH, Justice.

This appeal raises the question whether the doctrine of frustration of purpose may be a defense in a breach of contract action in Massachusetts, and, if so, whether it excuses the defendant John J. Paonessa Company, Inc. (Paonessa), from performance.

The claim of the plaintiff, Chase Precast Corporation (Chase), arises from the cancellation of its contracts with Paonessa to supply median barriers in a highway reconstruction project of the Commonwealth. Chase brought an action to recover its anticipated profit on the amount of median barriers called for by its supply contracts with Paonessa but not produced. Paonessa brought a cross action against the Commonwealth for indemnification in the event it should be held liable to Chase. After a jury-waived trial, a Superior Court judge ruled for Paonessa on the basis of impossibility of performance. ² Chase and Paonessa cross appealed. The Appeals Court affirmed, noting that the doctrine of frustration of purpose more accurately described the basis of the trial judge's decision than the doctrine of impossibility. Chase Pre cast Corp. v. John J. Paonessa Co., 28 Mass.App.Ct. 639, 554 N.E.2d 868 (1990). We agree. We allowed Chase's application for further appellate review, and we now affirm.

The pertinent facts are as follows. In 1982, the Commonwealth, through the Department of Public Works (department), entered into two contracts with Paonessa for resurfacing and improvements to two stretches of Route 128. Part of each contract called for replacing a grass median strip between the north and southbound lanes with concrete surfacing and precast concrete median barriers. Paonessa entered into two contracts with Chase under which Chase was to supply, in the aggregate, 25,800 linear feet of concrete median barriers according to the specifications of the department for highway construction. The quantity and type of barriers to be supplied were specified in two purchase orders prepared by Chase.

The highway reconstruction began in the spring of 1983. By late May, the department was receiving protests from angry residents who objected to use of the concrete median barriers and removal of the grass median strip. Paonessa and Chase became aware of the protest around June 1. On June 6, a group of about 100 citizens filed an action in the Superior Court to stop installation of the concrete median barriers and other aspects of the work. On June 7, anticipating modification by the department, Paonessa notified Chase by letter to stop producing concrete barriers for the projects. Chase did so upon receipt of the letter the following day. On June 17, the department and the citizens' group entered into a settlement which provided, in part, that no additional concrete median barriers would be installed. On June 23, the department deleted the permanent concrete median barriers item from its contracts with Paonessa.

Before stopping production on June 8, Chase had produced approximately one-half of the concrete median barriers called for by its contracts with Paonessa, and had delivered most of them to the construction sites. Paonessa paid Chase for all that it had produced, at the contract price. Chase suffered no out-of-pocket expense as a result of cancellation of the remaining portion of barriers.

This court has long recognized and applied the doctrine of impossibility as a defense to an action for breach of contract. See, e.g., Boston Plate & Window Glass Co. v. John Bowen Co., 335 Mass. 697, 141 N.E.2d 715 (1957); Baetjer v. New England Alcohol Co., 319 Mass. 592, 66 N.E.2d 798 (1946); Butterfield v. Byron, 153 Mass. 517, 27 N.E. 667 (1891). Under that doctrine, "where from the nature of the contract it appears that the parties must from the beginning have contemplated the continued existence of some particular specified thing as the foundation of what was to be done, then, in the absence of any warranty that the thing shall exist ... the parties shall be excused ... [when] performance becomes impossible from the accidental perishing of the thing without the fault of either party." Boston Plate & Window Glass Co., supra, 335 Mass. at 700, 141 N.E.2d 715, quoting Hawkes v. Kehoe, 193 Mass. 419, 423, 79 N.E. 766 (1907).

On the other hand, although we have referred to the doctrine of frustration of purpose in a few decisions, we have never clearly defined it. See Mishara Constr. Co. v. Transit-Mixed Concrete Corp., 365 Mass. 122, 128-129, 310 N.E.2d 363 (1974); Essex-Lincoln Garage, Inc. v. Boston, 342 Mass. 719, 721-722, 175 N.E.2d 466 (1961); Baetjer v. New England Alcohol Co., supra, 319 Mass. at 602, 66 N.E.2d 798. Other jurisdictions have explained the doctrine as follows: when an event neither anticipated nor caused by either party, the risk of which was not allocated by the contract, destroys the object or purpose of the contract, thus destroying the value of performance, the parties are excused from further performance. See Howard v. Nicholson, 556 S.W.2d 477, 482 (Mo.Ct.App.1977); Perry v. Champlain Oil Co., 101 N.H. 97, 134 A.2d 65 (1957); Lloyd v. Murphy, 25 Cal.2d 48, 153 P.2d 47 (1944).

In Mishara Constr. Co., supra, 365 Mass. at 129, 310 N.E.2d 363, we called frustration of purpose a "companion rule" to the doctrine of impossibility. Both doctrines concern the effect of supervening circumstances upon the rights and duties of the parties. The difference lies in the effect of the supervening event. Under frustration, "[p]erformance remains possible but the expected value of performance to the party seeking to be excused has been destroyed by [the] fortuitous event...." ³ Lloyd v. Murphy, supra, 25 Cal.2d at 53, 153 P.2d 47. The principal question in both kinds of cases remains "whether an unanticipated circumstance, the risk of which should not fairly be thrown on the promisor, has made performance vitally different from what was reasonably to be expected." See Lloyd, supra at 54, 153 P.2d 47 (frustration); Mishara Constr. Co., supra, 365 Mass. at 129, 310 N.E.2d 363 (impossibility).

Since the two doctrines differ only in the effect of the fortuitous supervening event, it is appropriate to look to our cases dealing with impossibility for guidance in treating the issues that are the same in a frustration of purpose case. ⁴ The trial judge's findings with regard to those issues are no less pertinent to application of the frustration defense because they were considered relevant to the defense of impossibility.

Another definition of frustration of purpose is found in the Restatement (Second) of Contracts § 265 (1981):

"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."

This definition is nearly identical to the defense of "commercial impracticability," found in the Uniform Commercial Code, G.L. c. 106, § 2-615 (1988 ed.), ⁵ which this court, in Mishara Constr. Co., supra at 127-128, 310 N.E.2d 363, held to be consistent with the common law of contracts regarding impossibility of performance. It follows, therefore, that the Restatement's formulation of the doctrine is consistent with this court's previous treatment of impossibility of performance and frustration of purpose.

Paonessa bore no responsibility for the department's elimination of the median barriers from the projects. Therefore, whether it can rely on the defense of frustration turns on whether elimination of the barriers was a risk allocated by the contracts to Paonessa. Mishara Constr. Co., supra, 365 Mass. at 129, 310 N.E.2d 363, articulates the relevant test:

"The question is, given the commercial circumstances in which the parties dealt: Was the contingency which developed one which the parties could reasonably be thought to have foreseen as a real possibility which could affect performance? Was it one of that variety of risks which the parties were tacitly assigning to the promisor by their failure to provide for it explicitly? If it was, performance will be required. If it could not be so considered, performance is excused."

This is a question for the trier of fact. Id. at 127, 130, 310 N.E.2d 363.

Paonessa's contracts with the department contained a standard provision allowing the department to eliminate items or portions of work found unnecessary. ⁶ The purchase order agreements between Chase and Paonessa do not contain a similar provision. This difference in the contracts does not mandate the conclusion that Paonessa assumed the risk of reduction in the quantity of the barriers. It is implicit in the judge's findings that Chase knew the barriers were for department projects. The record supports the conclusion that Chase was aware of the department's power to decrease quantities of contract items. The judge found that Chase had been a supplier of median barriers to the department in the past. The provision giving the department the power to eliminate items or portions thereof was standard in its contracts. See Standard Specifications for Highways and Bridges, Commonwealth of Massachusetts Department of Public Works § 4.06 (1973). The judge found that Chase had furnished materials under and was familiar with the so-called "Unit Price Philosophy" in the construction industry, whereby contract items are paid for at the contract...