April 21, 2022
Tom Brady’s “Last” Touchdown Ball
Football fans everywhere rejoiced after legendary NFL quarterback Tom Brady announced that he would be coming out of retirement last month. Well, almost everywhere. One fan purchased Brady’s last touchdown football at auction for $518,628.00 just one day before Brady made his surprise announcement that he would be returning to the game. That announcement turned the potentially historic football into just another pigskin (unless Brady were to call off his return or throw zero touchdowns in the upcoming season). Luckily for the buyer, the auction house “wanted to do the right thing” and agreed to nullify the sale in light of Brady’s decision to return.
While the buyer of Brady’s “last” touchdown ball was bailed out by a benevolent auction house, not every party to a contract may be as fortunate. Before entering a contract for services or the sale of a business, real estate, or even a piece of sports history, parties must be prepared to answer the following question: what happens if the subject of the transaction suddenly and drastically loses value or performance becomes unfeasible due to circumstances beyond the parties’ control?
One of the oldest principles of contract law is pacta sunt servanda or “agreements must be kept.” Generally speaking, a party cannot refuse to honor a contract by simply claiming that circumstances changed through no fault of their own. As with any rule, however, there are exceptions. Where a contract fails to adequately describe what happens to the parties’ obligations when unforeseen circumstances arise, the defense of frustration of purpose may fill in the gaps.
What is Frustration of Purpose?
Frustration of purpose relieves a party from its obligation to perform when their main purpose for entering into the relevant contract is substantially frustrated by circumstances beyond their control and through no fault of their own. For this defense to apply, the nonoccurrence of the frustrating circumstance must have been a basic assumption on which the contract was made. If, however, the agreement or other circumstances demonstrate that the parties contemplated the possibility of the frustrating circumstance and allocated risk accordingly, the defense will not apply. The classic example of frustration of purpose is Krell v. Henry from the Court of Appeal in England. In that case, Henry contracted with Krell to use Krell’s apartment to view King Edward VII’s coronation procession, which was scheduled for June 26-27, 1903. On June 24, however, the King became sick and the ceremony was postponed. The court ultimately ruled that Henry did not have to pay for the rental because the contract was based on the clear assumption that the procession would occur as scheduled even though the contract did not explicitly reference the procession.
Although Mr. Henry was excused from his obligation due to a frustration of purpose, the application of the defense is fact-specific, rarely invoked, and narrowly applied. Generally, courts are skeptical of looking beyond the terms of a contract to infer the intent of the parties, an inevitability when the defense turns on whether the parties assumed that the frustrating event would or would not occur. Moreover, a contract is not considered to have been frustrated if an event merely makes the contract less valuable or more difficult to perform or if alternative means of performance are available.
Steps to Avoid Frustration
Without more information, it is anyone’s guess whether the buyer of Brady’s “last” touchdown ball could have relied on frustration of purpose as a defense to paying. On one hand, a court could have determined that the parties understood that Brady could call off his retirement at any time and proceeded with the sale anyway. On the other hand, a court could have decided that the sale was entered into under the assumption that Brady would never throw another touchdown pass again. The uncertainty surrounding these assumptions demonstrates that contracting parties should think carefully about their obligations as well as how their ability to perform those obligations may be affected by circumstances beyond their control. Parties can take steps to avoid unexpected outcomes by incorporating appropriate clauses that limit or condition their performance, including termination provisions based upon the occurrence or nonoccurrence of a certain event, a force majeure clause covering unforeseen circumstances more generally, a limitation on damages, or other limiting clauses. A well-drafted contract can insulate parties from specific issues – a famous football player unretiring – to more general world altering occurrences such as the COVID-19 pandemic, supply chain disruptions, and the conflict in Ukraine. Parties entering into contracts with such concerns should carefully consult with their legal counsel about whether and which clauses may be appropriate.