Michigan Law Review Michigan Law Review
Volume 36 Issue 7
1938
CONTRACTS - EFFECT OF FAIL URE OF PERFORMANCE IN AN CONTRACTS - EFFECT OF FAIL URE OF PERFORMANCE IN AN
ALEATORY CONTRACT ALEATORY CONTRACT
Michigan Law Review
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Michigan Law Review,
CONTRACTS - EFFECT OF FAIL URE OF PERFORMANCE IN AN ALEATORY
CONTRACT
, 36 MICH. L. REV. 1198 (1938).
Available at: https://repository.law.umich.edu/mlr/vol36/iss7/13
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MICHIGAN
LAW
REVIEW
[ Vol. 36
CONTRACTS
- EFFECT
OF
FAIL
URE
OF
PERFORMANCE
IN
AN
ALEATORY
CONTRACT
- Plaintiff held a note of defendant's husband, long overdue.
Defendant promised to guarantee payment of her husband's note, in considera-
tion of plaintiff's promise to lend
her
money.
Thereafter
plaintiff,
in
breach of
its promise, refused defendant a loan. Defendant immediately repudiated the
contract. Plaintiff sued on the contract to recover the amount of the note with
interest. Held, the promises were dependent; plaintiff's refusal to make the loan
was a material breach of its promise, and excused defendant from further per-
formance under the contract. People's
Trust
& Savings Bank v. Wassersteen,
(Wis.
1937)
276
N.
W.
330.
The
modern tendency undoubtedly is to hold
that
mutual promises in a
bilateral contract are dependent.
The
reason for this rule
is
the assumption,
usually justifiable, that the parties regard the performances as equivalent and as
the agreed exchange for each other.1
In
the
case
of aleatory contracts, however,
quite often the performances mutually promised are
not
equivalent and it can
not
be
presumed that the parties regarded them as the agreed exchange for each
other.
This
fact would seem to suggest
that
in this class of contracts the usual
rule,
that
mutual promises
in
a bilateral contract are dependent,
is
not always
applicable.
The
performances in
an
aleatory contract are
not
the agreed exchange
for each other where the promise on one side
is
subject to a fortuitous condition
2
and the promise on the other side
is
not, as in the ordinary fire insurance policy;
or
where both promises are subject to different fortuitous conditions, as in the
case of mutual promises of guaranty.
In
the case
of
the fire insurance policy,
payment of the premiums by the insured
is
the agreed exchange for the risk
of fire damage assumed by the insurance company, not for payment of the face
1
See
3
WILLISTON,
CoNTRAcTs,
rev. ed., § 813
(1936).
2
A fortuitous condition
is
an event the happening of which
is
beyond
the
control
of either party to the contract.
"It
may be beyond the power of any human being
to bring the event to pass;
it
may be within the control of third persons;
it
may even
be a past event,
as
the
loss
of a
vessel,
provided that the fact
is
unknown to the parties.
The
event may be positive or negative--an occurrence or a failure to occur. But the fact
that the time or amount of performance
is
dependent on a fortuitous event
does
not
make a promise aleatory." 1
CONTRACTS
RESTATEMENT,
§ 291, comment a
(1932).
RECENT
DECISIONS
II99
value
of
the policy.
In
the
case of
mutual
promises
of
guaranty where
the
parties
guarantee payment
of
debts
of
different amounts,
it
is clear
that
payment of one
debt is
not
the
agreed exchange for payment
of
the
other debt; instead
the
bar-
gain consists
in
an
exchange
of
risks.
Where
it
is clear, as
it
is
in
these
two
instances,
that
the performances mutually promised
are
not
equivalent
and
are
not
the agreed exchange for each other,
it
has been held
that
the promises
are
independent,
3
and
that
material breach by one
party
of
his promise gives
the
other party a cause
of
action
but
does
not
excuse
him
from his
duty
to
perform."'
The
reason underlying this rule probably is
that
to
hold the promises dependent
where there is such a disparity between the values of the performances
would
prevent the
party
in
default,
if
his performance is the less valuable
of
the
two
performances, from recovering the difference
in
value between his performance
and
the performance
of
the
other
party,
without
an
equivalent loss
to
the other
party.
5
In
the instant case the
court
did
not
consider
the
aleatory character
of
the contract.
From
the facts stated
in
the
opinion,
it
cannot be determined
with
any degree
of
certainty
whether
or
not
the
parties regarded the performances as
the agreed exchange for each other.
6
If
the parties regarded defendant's risk
that
her
husband's note
might
not
be paid,
and
not
payment
by
defendant
of
her
husband's note, as the agreed exchange for plaintiff's promised loan, the
promises would be independent
under
the last mentioned rule.7 However,
it
3
Where both promises are subject to the same fortuitous condition,
the
perform-
ances are equally certain and presumably
the
agreed exchange for each other.
In
that
event the promises are dependent, and material breach by one party
excuses
the other
from his duty to perform. Griggs v. Moors, 168 Mass. 354,
47
N.
E.
128
(1897).
'Christie
v. Borelly, 29 L.
J.
(N.
S.) (C.
P.)
153
(1860).
But see Guy-Pell
v.
Foster,
[1930]
2 Ch. 169, noted 29 MICH. L.
REV.
932
(1931).
5
Similarly, to hold the promises dependent would allow
the
party not
in
default,
secured after
the
breach by his right to claim that
he
is
excused
if
his own performance
should fall due or prove the more onerous, to sit
by
without rescinding and have
the
right to sue for damages later if it should become certain that
he
does
not
have to per-
form or that his performance
is
the
less
onerous.
There
would be a loss to the party
in default; and again, since the party not
in
default would have been subject to no
risk after the breach, there would be no equivalent
loss
to him.
The
American Law Institute takes the position that
the
party not
in
default,
to
be
relieved in a proper
case
from a one-sided bargain, should
Ji.ave
a right to be dis-
charged from the contract. However, to prevent injustice,
it
places certain restrictions
on
the
right.
The
party not
in
default can be discharged only if he rescinds; and
he
can rescind only
if
there has been a material breach of the contract,
if
he has received no
substantial benefit under
the
contract, and
if
it
has not become more probable than
when the contract
was
made that he will have to perform. I
CONTRACTS
RESTATEMENT,
§ 293
(1932).
It
is
submitted that this view, though a just one
in
theory, might not
always administer justice
in
practice. Whether
it
has become more probable than when
the
contract
was
made that
the
party not
in
default will have to perform, may
in
no
way be ascertainable.
6
"The
matter does not depend chiefly on form.
It
is
a question of fact whether
the promised price
was
presumably regarded
as
an exchange for the performance
of
the
other party or
as
the
purchase price of a chance or risk." 3
WILLISTON,
CONTRACTS,
rev.
ed.,§
888
(1936).
7
Defendant rescinded immediately after plaintiff's breach. These facts may
1200
MICHIGAN
LAW
REVIEW
[
Vol.
36
may very well
be
that the parties regarded payment
by
defendant of her husband's
note
as
the agreed exchange for plaintiff's loan.
If
the husband was insolvent
when the contract was made and if there was no apparent probability of his
paying the note, the parties may have regarded defendant's undertaking
as
something certain and not
as
a risk that the note might
not
be
paid. In that
event, the promises may properly
be
regarded as dependent.
present a
case
where defendant would be discharged from the contract under the view
proposed by
the
American Law Institute. I
CoNTRACTS
RESTATEMENT,§
293·
(1932).
Here
was
a material breach by plaintiff; defendant had received no substantial benefit
under
the
contract; and there
was
no
greater probability than when the contract
was
made that defendant would have to perform.
If
defendant's husband
was
insolvent when
the
contract
was
made, any subsequent change
in
the husband's circum-
stances would not likely have taken
the
direction of increasing the probability that
defendant would have to perform.
