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Source: Legal > Secondary Legal > Area of Law Treatises > Corbin on Contracts TOC: Corbin on Contracts > PART VI BREACH OF CONTRACT--JUDICIAL REMEDIES > TOPIC D SPECIFIC PERFORMANCE > Supp. to Chapter 64 SPECIAL REASONS FOR REFUSING SPECIFIC ENFORCEMENT > Supp. to 1170 Effect of Impossibility and Illegality

12-64 Corbin on Contracts Supp. to 1170 Corbin on Contracts Copyright 2006, Matthew Bender & Company, Inc., a member of the LexisNexis Group. PART VI BREACH OF CONTRACT--JUDICIAL REMEDIES TOPIC D SPECIFIC PERFORMANCE Supp. to Chapter 64 SPECIAL REASONS FOR REFUSING SPECIFIC ENFORCEMENT 12-64 Corbin on Contracts Supp. to 1170 Supp. to 1170 Effect of Impossibility and Illegality [Go To Main] (A) The following cases cite this section: (1) Christian v. Rabren, 290 Ala. 45, 273 So. 2d 459, 464 (1973). Franklin, Christian and Schlimmer inherited land as tenants in common, subject to widow's dower and homestead rights. Rabren wanted to buy the land, so he drew up an option agreement between himself and the three owners, but only Franklin and Christian were willing to sign, so Schlimmer's name was crossed out. The contract described 127 acres, though Rabren later learned the widow claimed 41 of these in fee. Franklin conveyed his share within the option period, but Christian refused, saying she did not have to convey because Schlimmer would not and because she was induced to sign on the understanding that the sale proceeds would be held in trust for the widow, and Franklin breached this by keeping his receipts. Rabren sued for specific performance, and the trial court ordered Christian to convey ''her interest'' without purporting to determine what that interest was, since the widow claimed partial ownership. Held, affirmed in part, reversed in part. The high court thought the trial court should have determined what Christian's interest was before ordering it conveyed; also it was error to order conveyance of future interests in the realty Christian might acquire (such as from the widow) said the court, citing 1170 to show that she was bound to convey only that interest held as of the date of the contract, plus any acquired up until final judgment. The dissenting opinion cited 1160 to show that where tenants in common promise together and not as individuals, then when one cannot convey, the others need not. The majority thought the lining out of the third name showed a lack of intent to condition the contract on the agreement of all to be bound. It is also true that if the question is a disputed one, it was a question of fact, and should have been decided by the trial court, who apparently did not believe Christian's testimony to establish it. (2) Ellis v. Corey (In re Ellis), 674 F.2d 1238, 1250 (9th Cir. 1982). In 1971, Ellis conveyed the Silversword Inn to Hagopian, Corey's sister. Corey acted as her sister's agent. The deed was subject to a lease and reserved an option to repurchase until December 31, 1976. In 1972 Ellis filed a Chapter XII bankruptcy. In 1973 Corey bought her sister's interest. In 1977 she contracted to sell to Louis and his wife. Later she repudiated that deal, and Louis sought specific performance in state court, winning after trial in 1979. She appealed, but sought no stay, and the clerk executed an ''Agreement of Sale'' to Loui and he recorded. Various other state court maneuvers followed, and also Ellis filed a ''Complaint to Determine Lien'' against Corey in Bankruptcy court. She admitted all the allegations of the complaint; he got judgment on the pleadings and

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recorded December 7, 1979. In 1980 Ellis filed a complaint against the Louis. The bankruptcy judge vacated the December judgment on the pleadings. P. 1241. (The court's description of subsequent motions, stays, joinders, disclaimers, appeals, and other procedural matters goes on for another four pages.) Ultimately he ruled for the Loui interests and against the Ellis interests on a theory of res judicata. P. 1246. Held, vacated. The court said that Corey could not avoid liability to the Loui interests simply because she ''turns out not to have marketable title,'' and cited this 1170 to show that, ''Of course, specific performance of such an agreement will not be decreed if the defendant does not have and cannot obtain title.'' P. 1250. (3) Sink v. Meadow Wood Country Estates, Inc., 18 Conn. App. 569, 559 A.2d 725 (1989). Purchasers of subdivision lots sued the developer for specific performance of the contract of sale. In affirming a judgment below for the purchasers, the court holds, inter alia, that the purchasers had demonstrated in the evidence that they were ready, willing, and able to perform notwithstanding their insistence that the developer build a road called for in the development plan, as the trial court justifiably found that construction of the road was a condition precedent to purchasers' performance. The treatise is also cited as the court decides that enlargement of the particular lot to be conveyed did not render specific performance unavailable, as this enlargement was by voluntary act of the developer, that the lot was still substantially the same, and that the developer had brought about any hardship through its own refusal to honor its contractual commitments, viz., the building of the road discussed above. (4) United States v. Winstar Corp., 518 U.S. 839, 116 S. Ct. 2432 (1996) (quoting Corbin). In the aftermath of the Reagan-era thrift crisis, the Federal Home Loan Bank Board encouraged healthy thrifts to take over ailing ones in a series of ''supervisory mergers.'' In return for taking over liability for the failing thrifts from the Federal Savings and Loan Insurance Corporation (FSLIC), the Bank Board agreed to let the acquiring entities designate the excess of the purchase price over fair value as an intangible asset called ''supervisory goodwill,'' and to count the goodwill toward the capital reserve requirements imposed by federal regulation. It also allowed them to count certain cash contributions the FSLIC made to sweeten the mergers as a permanent credit to regulatory capital. Subsequently Congress passed the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), prohibiting the thrifts from continuing to use the favorable accounting methods that the Bank Board had promised them. Three thrifts (two of which had been seized and liquidated for failing to meet FIRREA's capital requirements, the third having avoided seizure by private recapitalization) separately sued the United States in the Court of Federal Claims for breach of contract. The court granted each of the thrift's motions for summary judgment. Upon consolidation, the en banc Federal Circuit affirmed, and the Government petitioned for certiorari. The Supreme Court, per Justice Souter, held that terms of the Bank Board's contract with the thrifts that assigned the risk of regulatory change to the Government are enforceable, and that the Government is liable in damages for breach. Essential to the decision was Justice Souter's explanation exactly what the Bank Board's and the FSLIC's contracts with the thrifts did and did not require. They did not stop the Government from regulating the thrift industry the way it saw fit. Rather, they contractually bound the Government to recognize the accounting changes in the agreements between the parties. ''We read this promise as the law of contracts has always treated promises to provide something beyond the promisor's absolute control, that is, as a promise to insure the promisee against loss arising from the promised condition's nonoccurrence.'' Thus, when a change in Government regulation makes a

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promised performance illegal, the promisor may still be liable for damages for nonperformance. The Court next rejected four ''special defenses,'' not applicable to private contracts, that the Government made to the thrifts' breach of contract claim. These were: (1) surrenders of sovereign authority, such as a promise to refrain from changing regulations, must appear in unmistakable terms in order to be enforceable (the Government wasn't surrendering authority, simply agreeing to pay damages); (2) an agent's authority to make such surrenders must be delegated in express terms (same answer); (3) the Government may not, in any event, contract to surrender certain reserved powers (it didn't); and, (4) a ''public and general'' sovereign act, such as FIRREA's alteration of the capital reserve requirements, cannot trigger contractual liability. This last defense required closer attention than the others. The dilemma posed by the ''sovereign acts doctrine'' is this. Government often passes: laws that render performance under a contract impossible, and sometimes the performance that the Government renders impossible is one the Government itself has bound itself contractually to undertake. Would the Government then be caught by the traditional rule of contracts, that a party cannot be discharged if its own act rendered performance impossible? If so, the Government could never get the benefit of the doctrine of impossibility, when in many cases a plausible case could be made that the impossibility defense ought to be available.

For example, the Ordnance Department promises to ship silk within a certain time. Shipment is delayed because the United States Railroad Administration places an embargo on shipments of silk by freight. The promisee sues for breach. In the seminal case from which this example was drawn, the Supreme Court held for the Government: The United States as sovereign had made performance by the United States as a contractor impossible, and the United States as a contractor cannot be held liable for the public acts of the United States as sovereign. But what if the Government had placed the embargo primarily for the purpose of absolving itself from its obligation? The main point, said Justice Souter, is that the Government in its role as a contractor is subject to the law applicable to contracts between private individuals. ''If the Government is to be treated like other contractors, some line has to be drawn in situations like the one before us between regulatory legislation that is relatively free of government self-interest and therefore cognizable for the purpose of a legal impossibility defense and, on the other hand, statutes tainted by a governmental object of self-relief.'' The ''sovereign acts doctrine'' relies on the generality of the terms in the Government's exercise of sovereign power to guard against the danger of an exercise of self-interest on behalf of the Government as a contractor. Nonetheless, the stronger the Government's self-interest, ''the more suspect becomes the claim that its private contracting partners ought to bear the financial burden of the Government's own improvidence, and where a substantial part of the impact of the Government's action rendering performance impossible falls on its own contractual obligations, the defense will be unavailable.'' Exactly this was the case when Congress passed FIRREA, which implicated the Government's self-interest to such an extent that it could not qualify as a ''public and general'' exercise of the sovereign power. Even if FIRREA could qualify as ''public and general,'' however, the Government would fail to get discharge for another fundamental reason drawn from straight contract doctrine. In order to be discharged on the ground of impossibility, the Government would have to show that the nonoccurrence of regulatory amendment was a basic assumption of the contracts with the thrifts. ''The premise of this requirement is that the parties will have bargained with respect to any risks that are both within their contemplation and central to the substance of the contract... .'' Yet the parties

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negotiating had known that federal banking regulations were historically subject to frequent change. That is exactly why the parties bargained for particular regulatory treatment. ''Such an agreement reflects the inescapable recognition that regulated industries in the modern world do not live under the law of the Medes and the Persians, and the very fact that such a contract is made at all is at odds with any assumption of regulatory stasis.'' Hence, concludes Justice Souter, ''it would be absurd to say that the nonoccurrence of a change in the regulatory capital rules was a basic assumption upon which these contracts were made.'' The parties had allocated the risk of the occurrence of regulatory change--to the Government. To hold otherwise would deprive the thrifts of the whole of their consideration. This case is also noted in 1321 and 1343 of this supplement.

Supplement to Notes in Main Volume 68. Fla.--Ferguson v. Five Points Nat'l Bank of Miami, 187 So. 2d 45 (Fla. App. 1966) (Guaranty by bank of promissory note in which it had no beneficial interest held ultra vires under National Bank Act). Md.--Patton v. Graves, 244 Md. 528, 224 A.2d 411 (1966) (refusal to enforce realty contract signed on Sunday where state law forbids such activity on Sundays). R.I.--Devlin v. Brown, 101 R.I. 569, 225 A.2d 664 (1967) (refusal to enforce administratrix's promise to sell land because she had failed to obtain probate court's approval of sale as required by statute). 71. This section is quoted in Kowalchuk v. Hall, 80 Nev. 3, 388 P.2d 201 (1964). After the defendant had filed a subdivision plat and dedicated the roads and streets therein to the County, and the said dedication was accepted, the defendant sold lots in the subdivision to the plaintiff covenanting to pave the roads and streets. In the plaintiff's suit for specific performance of this covenant, the court denied the decree for two reasons: the remedy in damages was adequate and performance by the defendant was impossible without the assent and participation of the County. In Stillman v. Stillman, 20 A.D.2d 723, 247 N.Y.S.2d 569 (1964), a separation agreement provided that the defendant should procure and maintain two 20-payment life policies of $ 10,000 each for the wife's benefit. Specific performance of the promise was decreed. But see Butler v. Attwood, 369 F.2d 811 (6th Cir. 1966) where two controlling shareholders of a corporation agreed to maintain their percentage holdings by making future purchases of shares in equal amounts, each to notify the other of purchase opportunities. Defendant's decedent prior to his death contracted to purchase the total holdings of a third party without disclosing to plaintiff that such shares were for sale. Plaintiff sued the third party and decedent's heirs for specific performance of the agreement that he should have equal opportunity to purchase one-half of third party's shares. The lower court held that no relief could be decreed against the third party. Reversed upon appeal. Citing the rule that equity regards that done which should be done and noting that third party would sustain no injury thereby since he was retiring from the corporation and had therefore decided to sell his shares, the court held that relief could be obtained against the third party despite his claim that the contract of sale had been abandoned. The latter claim was regarded by the court as a pretext for collusive circumvention of decedent's agreement. But see DeTar Distributing Co. v. Tri-State Motor Transit Co., 379 F.2d 244 (10th Cir. 1967) where specific performance of a contract dependent upon I.C.C. approval was granted. A receiver was appointed to apply for I.C.C. approval and the decree was conditioned upon receipt of that approval. N.M.--Hilger v. Cotter, 75 N.M. 699, 410 P.2d 411 (1966) citing this section.

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Source: Legal > Secondary Legal > Area of Law Treatises > Corbin on Contracts TOC: Corbin on Contracts > PART VI BREACH OF CONTRACT--JUDICIAL REMEDIES > TOPIC D SPECIFIC PERFORMANCE > Supp. to Chapter 64 SPECIAL REASONS FOR REFUSING SPECIFIC ENFORCEMENT > Supp. to 1170 Effect of Impossibility and Illegality View: Full Date/Time: Thursday, January 25, 2007 - 8:59 PM EST

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