Case Title: Mortenson v. Scheer

Citation: 

Docket Number: 96-340

State: wyoming

Court: Wyoming Supreme Court

Date: 1998-05-04T00:00:00Z

Document:
Mortenson v. Scheer1998 WY 61957 P.2d 1302Case Number: 96-340, 96-341Decided: 05/04/1998Supreme Court of Wyoming

Frances Denise MORTENSON, as Trustee of the Christopher and 
Frances Mortenson Family Trust Dated August 7, 1985, Appellant

(Plaintiff),

v.

Vernon L. SCHEER, Jolene D. Scheer, Bud Burnaugh, 
Jr., and Mary Burnaugh, Co-Trustees of the Burnaugh Family Trust 
Dated

May 24, 1994, Appellees (Defendants), and Lee 
Ranches, Inc., Appellee (Defendant).

LEE RANCHES, INC., Appellant 
(Defendant),

v.

Bud BURNAUGH, Jr. and Mary Burnaugh, Co-Trustees of 
the Burnaugh Family Trust, Dated MAY 24, 1994; and Vernon L. 
Sheer

and Jolene D. Scheer, husband and wife, Appellees 
(Plaintiffs).

 

Appeal from the District Court, Fremont County, Terry 
Rogers, J.

 

John A. MacPherson of 
MacPherson Law Offices, Rawlins, for Mortenson Family 
Trust.

Maureen T. Donohoue, Lander, 
for Lee Ranches, Inc.

William L. Miller of Miller 
and Fasse, P.C., Riverton, for Scheers and 
Burnaughs.

 

Before TAYLOR, C.J., and 
THOMAS, MACY, GOLDEN, and LEHMAN, JJ.

 

THOMAS, Justice.

[¶1] Frances Denise 
Mortenson, as Trustee of the Christopher and Frances Mortenson Family Trust, 
(Mortenson) and Lee Ranches, Inc. (Lee Ranches) challenge the application of the 
law of impossibility of performance by the trial court to excuse Vernon L. 
Scheer, Jolene D. Scheer, and Bud Burnaugh, Jr., and Mary Burnaugh, Co-Trustees 
of the Burnaugh Family Trust dated May 24, 1994, (the Scheers and Burnaughs) 
from performing their contract with Lee Ranches, Inc. The contract provided that 
the Scheers and Burnaughs would abandon their effort to establish a private road 
across the lands of Lee Ranches, which were sold to Mortenson, in exchange for 
the promise of Lee Ranches to survey and construct a "BLM resource road" which 
would provide alternative access to the Scheers' and Burnaughs' lands. The 
Scheers and Burnaughs agreed they would obtain "the necessary BLM permits and 
approvals, at the expense of [Lee Ranches, Inc.]" for Lee Ranches to build the 
road. The Bureau of Land Management (BLM) instructed the Scheers and Burnaughs 
that rights-of-way across private lands connecting with the proposed resource 
road would have to be obtained before the BLM would consider the permit 
application. The Scheers and Burnaughs did not obtain the rights-of-way across 
the private lands, and the BLM did not grant the permit. The trial court ruled 
that the Scheers and Burnaughs had done everything required of them by the 
contract, and that performance of the contract was made impossible by the 
refusal of the BLM to issue the permit. We hold that one who agrees to obtain a 
governmental permit, under the circumstances found in this case, assumes the 
risk of failure to obtain the permit, and performance of that party's 
obligations under the contract is not excused because of the failure to obtain 
the permit. The trial court erred in invoking the doctrine of impracticability 
of performance in this case, and the Judgment is reversed and the case is 
remanded for further proceedings in accordance with this 
opinion.

 

[¶2] In their Brief of 
Appellants, Mortenson and Lee Ranches define the issues 
as:

 

1. The finding of the trial court that Appellees had 
not breached the contract due to impossibility of performance is not supported 
by sufficient evidence.

 

2. The trial court erred as a matter of law when it 
found that the Appellees had not breached the contract due to impossibility of 
performance, even though the Appellees never raised impossibility as an 
affirmative defense.

 

3. The Appellants have been prejudiced by the trial 
court allowing appellees to amend their Complaint to plead the affirmative 
defense of impossibility after the entry of summary judgment on behalf of 
Appellants, Lee Ranches, Inc[.,] and after judgment in this 
matter.

 

The Scheers and Burnaughs 
adopt these issues in their Brief of Appellees.

 

[¶3] The Scheers and 
Burnaughs owned a tract of land in Fremont County adjacent to Lee Ranches' land. 
For a number of years the Scheers and Burnaughs used a road which crossed Lee 
Ranches' property in order to gain access to their land. Although there was a 
lock on the gate and fence which enclosed Lee Ranches' land, the Scheers and 
Burnaughs were furnished with a key to the lock.

 

[¶4] In 1992, Lee Ranches 
entered into negotiations for the sale of its ranch lands to Mortenson. During 
the period of negotiations, Lee Ranches changed the lock on the gate, and the 
Scheers and Burnaughs were prevented from using the road they previously had 
used. The reason for denying the use of the road to the Scheers and Burnaughs 
was that Mortenson had indicated it would not purchase the property if there 
existed any easements with respect to it. Soon after they were denied access, 
the Scheers and Burnaughs applied to the Board of County Commissioners of 
Fremont County for the establishment of a private road across Lee Ranches' 
property. Upon learning of this application, Mortenson advised Lee Ranches that 
it would not purchase the land if the private road was 
established.

 

[¶5] In January of 1993, Lee 
Ranches endeavored to satisfy Mortenson and complete the sale of its property. 
It entered into a contract with the Scheers and Burnaughs pursuant to which Lee 
Ranches had the obligation, on or before August 1, 1993, to build a "BLM 
resource road" for alternative access to the Scheers' and Burnaughs' property. 
The Scheers and Burnaughs agreed to obtain, in a timely manner, the necessary 
BLM permit for the construction of the resource road across the BLM land. The 
expense of obtaining the necessary BLM permit was to be borne by Lee Ranches, 
and in exchange for the agreement to build the road, the Scheers and Burnaughs 
agreed to withdraw their petition to establish a private road which was pending 
before the Fremont County Commission and abandon any efforts to obtain a private 
road across Lee Ranches' property. In February of 1993, the Scheers and 
Burnaughs applied to the BLM for a permit to construct the resource road. The 
BLM advised the Scheers and Burnaughs that they would have to obtain private 
rights-of-way across adjacent private land before the BLM would consider the 
permit application. Mr. Scheer met with the private landowners, but they refused 
to grant easements across their property. As a result, the Scheers and Burnaughs 
never did obtain the permit from the BLM to build the resource road. Without the 
permit, Lee Ranches did not construct the resource road. At the trial, Vernon 
Scheer testified that when the contract was made with Lee Ranches, the Scheers 
and Burnaughs understood that the BLM would require easements to cross private 
lands to connect with the BLM road.

 

[¶6] On September 25, 1995, 
the Scheers and Burnaughs filed their action against Lee Ranches seeking 
specific performance of the contract or, alternatively, damages for breach of 
contract. Lee Ranches answered and filed a counterclaim in which it alleged 
breach of contract by the Scheers and Burnaughs. Subsequently, Mortenson brought 
an action against the Scheers and Burnaughs, which later was amended to include 
Lee Ranches as a defendant, in which Mortenson, claiming the rights of a 
third-party beneficiary, sought specific performance of the contract or, in the 
alternative, damages for breach.

 

[¶7] Following a bench trial 
conducted on July 10th and 11th, 1996, the trial court entered a Judgment on 
August 7, 1996, in which it found that there had been no breach of the contract 
by Lee Ranches because the Scheers and Burnaughs had failed to obtain the 
requisite BLM permit. The district court refused to afford relief to Lee Ranches 
on its counterclaim finding that performance by the Scheers and Burnaughs of the 
condition that the BLM permit be obtained had become impossible. No relief was 
afforded to either the Scheers and Burnaughs or Lee Ranches, and further, the 
court found that Mortenson was not entitled to relief as a third-party 
beneficiary under the contract, because performance of the contract had become 
impossible. Subsequent to that judgment, the district court also entered an 
Order Granting Summary Judgment pursuant to which it dismissed the Complaint of 
the Scheers and Burnaughs against Lee Ranches because of the failure of the 
Scheers and Burnaughs to obtain the BLM permits. The appeals in this case are 
taken only from the Judgment entered on August 7, 1996.

 

[¶8] As the focus of our 
resolution of the issues in this case, we rely upon the rules with respect to 
impracticability of performance found in RESTATEMENT (SECOND) OF CONTRACTS §§ 
261, 264, & 266 (1979). While it has been common to allude to these problems 
as ones of impossibility of performance, we adopt the view of the RESTATEMENT 
that impracticability is a more appropriate term because the rule reaches 
situations in which true impossibility is not necessarily present. We agree with 
the position set forth in the Introductory Note to Chapter 11, RESTATEMENT 
(SECOND) OF CONTRACTS at 310 (1979), that the question is one of law for the 
court to resolve. This rule has been applied by other courts. "Whether a party 
should be excused from its obligations under a written agreement because of 
impracticability of performance is a question of law." T.S.I. Holdings, Inc. v. 
Jenkins, 260 Kan. 703, 924 P.2d 1239, 1248 (1996); Luminous Neon, Inc. v. 
Parscale, 17 Kan. App. 2d 241, 836 P.2d 1201, 1204 (1992). We review rulings on 
questions of law de novo. Blagrove v. JB Mechanical, Inc., 934 P.2d 1273, 1275 
(Wyo. 1997); Anderson v. Bommer, 926 P.2d 959, 961 (Wyo. 
1996).

 

[¶9] It is a basic principal 
of the law of contracts that a promisor is bound to perform the agreement 
according to its terms, or respond in damages for breach of the contract if the 
promisor unjustifiably fails to perform. Warner v. Denis, 84 Haw. 338, 933 P.2d 1372, 1381 (1997); J.J. Cassone Bakery, Inc. v. Consolidated Edison Co. of New 
York, Inc., 168 Misc.2d 272, 638 N.Y.S.2d 898, 903 (N.Y.Sup. 1996). See also, 
Modern status of the rules regarding impossibility of performance as defense in 
action for breach of contract, 84 A.L.R.2d 12, 21 (1962); Introductory Note to 
Chapter 11, RESTATEMENT (SECOND) OF CONTRACTS at 309 (1979).  The rule of impracticability to excuse 
performance is invoked when supervening circumstances render performance of one 
of the conditions of the contract impracticable. Downing v. Stiles, 635 P.2d 808, 811 (Wyo. 1981); Kessler v. Tortoise Development, Inc., 130 Idaho 105, 937 P.2d 417, 420 (1997); In Interest of Doe, 917 S.W.2d 139, 142 (Tex. App. 
1996).

 

[¶10] In Downing, we 
addressed the doctrine of commercial frustration, introducing that topic by 
citing to and quoting from the Introductory Note to Chapter 11, RESTATEMENT 
(SECOND) OF CONTRACTS (1979). Consistently, we rely upon RESTATEMENT (SECOND) OF 
CONTRACTS § 261 (1979) which states:

 

          § 261. 
Discharge by Supervening Impracticability

 

Where, after a contract is made, a party's 
performance is made impracticable 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 duty to render that performance is discharged, unless the language 
or the circumstances indicate the contrary.

 

[¶11] With specific 
reference to this case, we also rely upon RESTATEMENT (SECOND) OF CONTRACTS § 
264 (1979):

 

          
§ 264. Prevention by Governmental Regulation or 
Order

 

If the performance of a duty is 
made impracticable by having to comply with a domestic or foreign governmental 
regulation or order, that regulation or order is an event the non-occurrence of 
which was a basic assumption on which the contract was 
made.

 

[¶12] Impracticability of 
performance is a strict standard that can only be invoked when the circumstances 
truly dictate the impracticability. Barrett v. Ballard, 191 Mont. 39, 44, 622 P.2d 180, 184 (1980), followed by, 360 Ranch Corp. v. R & D Holding, 278 
Mont. 487, 493, 926 P.2d 260, 263 (1996).

 

[¶13] Impracticability of 
performance is not invoked when, under the contract, one party assumes the risk 
that fulfillment of a condition precedent will be prevented. De Carlo and Doll, 
Inc. v. Dilozir, 45 Conn. App. 633, 698 A.2d 318, 323 (1997); Wheelabrator 
Envirotech Operating Services, Inc. v. Massachusetts Laborers Dist. Council 
Local 1144, 88 F.3d 40, 44-45 (1st Cir.(Mass.) 1996). The obligor is expected to 
provide in the contract for contingencies that are foreseeable. Downing v. 
Stiles, 635 P.2d  at 813; Wichita Properties v. Lanterman, 6 Kan. App. 2d 656, 633 P.2d 1154, 1161 
(1981). This is particularly true in an instance in which performance of the 
contract depends upon obtaining a governmental license or permit which is 
required. URI Cogeneration Partners, L.P. v. Board of Governors for Higher 
Education, 915 F. Supp. 1267, 1287 (D.R.I. 1996); RESTATEMENT (SECOND) OF 
CONTRACTS § 264 (1979).  RESTATEMENT 
(SECOND) OF CONTRACTS § 264 (1979) refers to RESTATEMENT (SECOND) OF CONTRACTS § 
266(1) (1979), and in RESTATEMENT 
(SECOND) OF CONTRACTS § 266, cmt. a, at 339 (1979), this limitation on the rule 
is found:

 

          
Comment:

 

a. Relation to other rules. * * * First, under the 
rules stated in this Section, the affected party must have had no reason to know 
at the time the contract was made of the facts on which he later 
relies.

 

[¶14] In light of the record 
in this case, it is clear that the Scheers and Burnaughs agreed to obtain "the 
necessary BLM permits and approvals, at the expense of [Lee Ranches]." The 
obtaining of the permit was a condition precedent to any duty of Lee Ranches to 
survey and build the resource road. Vernon Scheer testified that the Scheers and 
Burnaughs knew of this requirement at the time the contract was made, and the 
plain and unambiguous language reflects that knowledge. Any modicum of further 
investigation would have led to the requirement by the BLM of easement access 
over lands on which the connecting road existed, and Vernon Scheer testified 
that he understood when the contract was made that the BLM would require 
easements to cross private lands to connect with the BLM resource road. We hold 
that under this contract, the Scheers and Burnaughs assumed the risk that the 
BLM would not issue the necessary permits and approvals, and they should have 
provided for such a contingency in the contract. In the absence of such a 
provision, they are charged with the consequences of the refusal to issue the 
permit. In this regard, this situation is distinguishable from the facts in Mad 
River Boat Trips, Inc. v. Jackson Hole Whitewater, Inc., 803 P.2d 366 (Wyo. 
1990), because nothing in that case indicated any anticipation that the Forest 
Service would refuse to make an assignment of permits.

 

[¶15] The district court 
erred as a matter of law in invoking the doctrine of impracticability on these 
facts. Consequently, the Judgment entered in the trial court is reversed, and 
the case is remanded for further proceedings in accordance with this 
opinion.