Commercial Frustration and the Impossibility Defense: The Case of the Missing Bentley

Illinois agency rules, consumer fraud law and the commercial frustration doctrine are the focal points of Tahir v. DMI, 2014 WL 985351 (N.D. Ill. 2014), a case involving the purchase of an undelivered Bentley.

The plaintiff sued multiple car dealer defendants for breach of contract and consumer fraud after he paid over $100,000 for a car he never received.  The companies and individuals involved in the sale of the car operated a complex web of interconnected business entities that made it difficult to properly identify the selling defendants. 

The defendants all moved for summary judgment.

Result: Judgment for plaintiff on breach of contract claim against the dealership; Judgment for management company on plaintiff’s consumer fraud count.  

Basis/Reasoning:

The Court found for the plaintiff on its breach of contract claim versus the dealership based on Illinois agency principles governing liability to third parties. 

The test for agency is whether the principal can control the manner and method of the agent’s work such that the agent can affect the principal’s legal relationship.  (*5). 

Where a principal’s identity is disclosed to a third party, the disclosed principal is liable to the third party for a breach of contract while the agent is not.

Where an agent enters into a contract for an undisclosed principal, the agent is personally liable on the contract. 

Where a plaintiff gets a money judgment against an agent and an undisclosed principal, the plaintiff must choose which party to take the judgment against. (*5-6).

Here, both undisclosed and disclosed principal rules applied.  The dealership was managed by another entity under a written management agreement.  That agreement was cryptic concerning each parties’ duties in relation to the other. 

Based on the agreement’s wording, it was equally plausible that the car dealer controlled the manager and vice versa.

Because of this uncertainty, the Court found the dealer was liable under the car purchase contract as either a disclosed principal of the manager or as an agent for an undisclosed principal – also the manager.  Either way, plaintiff stated a breach of contract claim against the dealer. (*5).

The Court rejected the dealer defendant’s impossibility and commercial frustration defenses that blamed another dealer for not delivering the car. 

The impossibility defense applies where the (1) the impossibility was not and could not have been anticipated by the contracting parties, (2) the party claiming impossibility didn’t contribute to it, and (3) exhausted all possible alternatives to permit performance. 

Commercial frustration applies where (1) the frustrating  event wasn’t foreseeable and (2) the value of performance has been practically destroyed by the frustrating event.  (*6).  

Rejecting the defenses, the Court found that the manager’s default under the management agreement was clearly foreseeable as the agreement specified respective default and remedy provisions. 

The dealership also failed to show it exhausted all attempts at performance, such as by buying the car itself. The dealership offered no evidence that it lacked the resources to buy and deliver the car to the plaintiff. (*6).

The Court ruled against plaintiff on its consumer fraud claim against the manager.  An Illinois consumer fraud plaintiff must show (1) a deceptive act or practice, (2) defendant’s intent that the plaintiff rely on the deception, and (3) occurrence of the deception in trade or commerce.  (*8). 

The Court found that the plaintiff failed to demonstrate a deceptive act by the manager such as its intent to take plaintiff’s money without delivering the car.  At most, the Court ruled, the plaintiff alleged a breach of contract claim; not consumer fraud.  (*8).

Take-aways:

Many businesses operate through a byzantine web of corporate parents, subsidiaries, holding companies, trade names and “d/b/a”s (doing business as).  The plaintiff wisely named all possible entity permutations as defendants and let them sort out the responsible parties through motion practice.

The case also shows how difficult it is to prevail on an impossibility or commercial frustration defense – especially where the parties are sophisticated commercial entities.

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.