Brief supporting motion for summary judgment
This lawsuit should be dismissed summarily because the guarantee of the radio station’s two owners is for receivables from advertising sales in cause of business failure, in addition that they shall “shall well and truly pay or perform *** the obligations and pay all damages and other amounts stipulated,” (contract, p. 11, ¶ 2), which receivables cannot be remitted given near-failure imposed by third parties, making complying with the contract terms a supervening impossibility, with the “other” payments from either man likewise an original impossibility in the contract.
See first part of this series: I. Does Gov. Lee harm absolve borrower from requirement to repay? Flexibility says ‘no,’ ‘yes
This dispute is over future receivables at a radio station that makes its bread selling advertising for broadcast under a federal license. The lawsuit is filed under a “personal guaranty of performance” part of the contract in which the purported plaintiff demands payment of the whole amount personally from the owners, even though receipts from ads have dried up in a government-caused economic calamity.
The accused reserve by reference the motion to dismiss the case on grounds of third-party intervention. They reserve their motion to compel discovery, which to date remains unsatisfied, with not a single document forthcoming about financing in the contract.
Two sorts of impossibility of performance are ground or dismissal as a matter of law. One is original impossibility, and the other is supervening impossibility.
Intervening ‘extreme hardship’
The doctrine of frustration has been limited to cases of extreme hardship so that businessmen, who must make their arrangements in advance, can rely with certainty on their contracts. The courts have required a promisor seeking to excuse himself from performance of his obligations to prove that the risk of the frustrating event was not reasonably foreseeable and that the value of counterperformance is totally or nearly totally destroyed, for frustration is no defense if it was foreseeable or controllable by the promisor, or if counterperformance remains valuable.
Tennessee courts freed a Chattanooga utility in 1943 from a mandatory renewal provision in the 50-year deal, saying it was unenforceable because population growth on Lookout Mountain had polluted the spring from which the water came. Hinchman v. City Water Co., 179 Tenn. 545, 167 S.W.2d 986 (1943). As a later case explains, “The Water Company alleged that it had contracted for water that was pure and useable for human consumption. The Court in reaching its decision relieving the Water Company of liability, cited the case of Taylor v. Caldwell, 3 B.&S. 826, 122 *905 Eng.Rep. 309 (1863), the leading case establishing what is known as the new or modern rule in regard to the defense of impossibility of performance of a contract” N. Am. Cap. Corp. v. McCants, 510 S.W.2d 901, 904–05 (Tenn. 1974).
“The essence of the modern defense of impossibility is that the promised performance was at the making of the contract, or thereafter became, impracticable owing to some extreme or unreasonable difficulty, expense, injury, or loss involved, rather than that it is scientifically or actually impossible.” Williston on Contracts (Revised Ed.), Vol. 6, p. 5410.
Hinchman v. City Water Co., 179 Tenn. 545, 167 S.W.2d 986, 991 (1943)
The McCants court holds that supervening acts are grounds for a finding of unenforceability, citing Heart v. East Tennessee Brewing Co., 112 Tenn. 69, 113 S.W. 364 (1908) that holds unenforceable a saloon rental agreement supervened by governmental acts — imposition of state and national alcohol prohibition.
It is not necessary in this case to determine whether or not the contract contained in the lease restricts the use of the property for the sale of intoxicating liquors. It was the purpose of both lessor and lessee, as clearly expressed in the instrument, that it should be used as a saloon, and, this being made unlawful by law, the contract is no longer enforceable. 112 Tenn. at 74, 113 S.W. at 365. [emphasis added]
Interventions and interruptions that are reasonably foreseeable are not grounds for finding a contract unenforceable. Those beyond the contemplation of the parties are excused from performance.
The doctrine of frustration of commercial purpose, as expressed in McCants, is if the happening of an event, not foreseen by the parties to the contract and neither caused by nor under the control of either party, has destroyed or nearly destroyed either the value of performance or the object or purpose of the contract, then the parties are excused from further performance. The McCants court stated the “supervening event” must be “wholly outside the contemplation of the parties” but, if such frustrating event was reasonably foreseeable, the doctrine is not a defense. *872 The doctrine is predicated on the premise of giving relief where the parties could not provide themselves, by the provisions of the contract, against the happening of the supervening event. 17A C.J.S., Contracts, § 463(2).
Haun v. King, 690 S.W.2d 869, 872 (Tenn. Ct. App. 1984) (emphasis added)
“Failure to perform a contract is excused if performance becomes impossible due to a cause not attributable to the non-performing party and the impossibility is not among the probable contingencies which a person of ordinary prudence should have foreseen and provided for” St. George Holdings LLC v. Hutcherson, 632 S.W.3d 515 (Tenn. Ct. App. 2020), appeal denied (May 12, 2021) (emphasis added).
A party is not relieved under an impossible condition for performance if that party is the origin of the condition. “Party is not relieved of liability for his nonperformance of a contract based upon the defense of impossibility of performance where the impossibility is caused by the party’s own conduct or where the impossibility is caused by developments which the party could have prevented or avoided or remedied by appropriate corrective measures” Jenkins Subway, Inc. v. Jones, 990 S.W.2d 713 (Tenn. Ct. App. 1998) (emphasis added).
Future receivables sale & purchase agreement
Disputed in this case is an agreement that appears to be a uniquely American innovation serving free enterprise capitalism apart from the lending, banking and financialization sectors of the economy that deal in loans and are heavily regulated.
The counterparty in this case — Flexibility, or some other entity — agrees on a sale of future receivables from Hot News Talk Radio LLC, which company is dissolved. Because this is not a loan, and because there is no collateral, the arrangement in the contract is that the buyer of receipts takes a great risk with the prospect of great reward — richer than if it were a mere business lender extending a loan protected by collateral.
This review of the contract, the law in this case, will shed light on the “personal guaranty of performance” section, p. 11, that triggers the lawsuit. “This sale of the purchased futures receipts is made without express or implied warranty to Flexibility of collectibility of the purchased future receipts.” The radio station agrees to give Flexibility “full and complete ownership” of future receipts until the deal is satisfied.
Flexibility’s ability to collect “is contingent upon merchant’s continued operation of its business and successful generation of the future receipts until the purchased amount is delivered to flexibility in full.” The parties understand that “in the event of decreased efficiency or total failure of merchant’s business, Flexibility’s receipt of the full or any portion of the purchased amount may be delayed indefinitely” (¶ 5).
Hot News Talk Radio LLC receives a direct deposit in its checking account and begins payments at $164.22 per weekday. If the merchant “will experience sporadic increase or decrease in its daily receipts,” merchant has the right to reconcile and renegotiate payment, with Flexibility willing to be flexible on daily amounts collected (¶ 10).
“This agreement consummates the sale of the purchase future receipts at a discount, not borrowing funds by merchant from Flexibility. Flexibility does not charge merchant and will not collect from merchant any interest on the monies spent on the purchase of the purchased future receipts. The period of time that it will take Flexibility to collect the purchase amount is not fixed, is unknown to both parties as of the effective date of this agreement and will depend on [ ] how well or not well merchant’s business will be performing.” The contract proposes “as an extreme example” that if the “business ceases to exist *** for reason outside merchant’s control,” Flexibility may “never recover any moneys [sic] spent on such purchase” (¶ 14(a)(ii) (emphasis added).
Contract grants absolution
The contract, with repeating incantations implying absolution, says “if the full purchased amount is not remitted because merchant’s business went bankrupt or otherwise ceased operations in the ordinary course of business (but not due to merchant’s willful or negligent mishandling of its business), and merchant shall not have breached this agreement, merchant would not owe anything to Flexibility and would not be in breach of or in default under this agreement” (emphasis added). (¶ 14(a)(iv))
Flexibility’s risk acknowledgments. Flexibility agrees to purchase the purchased future receipts knowing the risks that merchant’s business may slow down or fail, and Flexibility assumes these risks based exclusively upon the information provided to it by merchant, and related to the business operations of merchant’s business prior to the date hereof *** . Furthermore, Flexibility hereby acknowledges and agrees that merchant shall be excused from performing its obligations under this agreement in the event merchant’s business ceases its operations *** . (emphasis original)
Four “valid excuses” are given for business failure: “adverse business conditions that occurred for reasons outside merchant’s control”; loss of premises; bankruptcy; and “natural disasters or similar occurrences beyond merchant’s control.”
With a valid excuse of intervening impossibilities imposed, accused are not in breach of contract.
The contract’s section 14 begins, “Not a loan” (emphasis original). “Merchant and Flexibility agree that the purchase price is paid to merchant in consideration for the ownership of the purchased future receipts and that payment *** is not intended to be, nor shall it be construed as[,] a loan from Flexibility to merchant that requires absolute and unconditional repayment on a maturity date. To the contrary, Flexibility’s ability to receive the purchased amount pursuant to this agreement, and the date when the purchased amount is paid in full (if ever) are subject to and conditioned upon performance of merchant’s business” (¶ 14(c)) (emphasis added).
The purchase is securitized under a “pledge of security,” in which the radio station gives a “continuing, perfected and first priority lien upon and security interest in ***all of merchant’s right, title and interest in *** all accounts, without limitation, all deposit accounts, accounts-receivable, and other receivables” as well as equipment and “all *** proceeds, as that term is defined by Article 9 of the UCC.”
Under “events of default and remedies,” ¶ 21-25, a merchant breach triggers the guaranty provisions of the contract. Nonpayment, an empty bank account from which Flexibility cannot draw out a $164.22 weekday payment, constitutes a breach.
Flexibility “may declare merchant in default *** by sending a default notice,” but it can also determine a breach without notice simply by virtue of not getting a payment (¶ 22). Contract ¶ 23, suggesting the parties to the contract live in Shlaraffenland or “the land of cockaigne,” declares the following:
Upon receipt of such default notice, merchant shall immediately pay Flexibility the unpaid portion of the purchased amount. [emphasis added]
These terms are an original impossibility. The accused are in business to make a living. The living — struck by actions of third parties, as per Affidavit and amended answer to motion for summary judgment, filed Aug. 12, 2022, — has been destroyed by unforeseeable government action. Stipulations such as “shall immediately pay the unpaid portion of the purchased amount” are an impossibility built originally into the contract, unperformable by merchant and unperformable by guarantors personally.
Remedies upon default include suit of the company’s owners under “the provisions of the personal guarantee of performance” without first suing Hot News Talk Radio LLC. The contract lets Flexibility “assign, transfer or sell its rights or delegate its duties hereunder *** without notice” (¶ 33).
The terms of making good are the “personal guaranty of performance.”
2. Guaranty of obligations: Guarantor hereby irrevocably, absolutely and unconditionally guarantees to Buyer prompt, full, faithful and complete performance and observance of all the merchant’s obligations; and guarantor unconditionally covenants to buyer that if default or breach shall at any time be made ***, guarantor shall well and truly pay or perform (or cause to be paid or performed) the obligations and pay all damages. ***
Contract, p. 11, ¶ 2
Again, the contract insists that “guarantor specifically acknowledges buyer is not a lender, bank or credit card processor, and that buyer has not offered any loans to merchant, and guarantor waives any claims or defenses of usury” (¶ 5).
Defendants accepted the proposed part of the contract because they have had every intention of paying all amounts owed as the cost of keeping radio programming in public service. They had already had one good and equitable contract with Flexibility Capital prior to the contract in dispute, with both parties coming out ahead in a future receivables sales and purchase agreement.
Grounds for summary judgment & dismissal
Accused make the case the lawsuit should be dismissed on the following grounds.
- A supervening impossibility is imposed upon the relationship between parties to make the contract unenforceable, an event wholly outside the contemplation of the parties. That is the conversion of state of Tennessee and its people into a penal colony, starting March 12, 2020, with Gov. Bill Lee’s first executive order in the erstwhile Covid-19 pandemic, followed by an illegal, fraudulent “safer at home” executive order April 2, 2020, imposing home confinement on 7 million people without lawful cause, legal reason, warrant or nonfraudulent exigency, as defendants have averred by separate motion, herein incorporated.
- An original impossibility is in the contract. The personal guaranty of performance ordains the defendants to “immediately pay Flexibility the unpaid portion of the purchased amount” (¶ 23) if they default. Therefore, the contract lacks the legal authority to empower the court to enforce the future receivables sale and purchase agreement upon defendants.
- Their business mortally harmed, accused stopped making payments. The amounts due are impossible to generate in the form of purchased receipts arising from the business of Hot News Talk Radio LLC. That business no longer exists, nor do defendants have means to pay by any other business in which they might be involved.
- Such requirement for payment of future and existing receivables is an original impossibility, part of the contract that, under supervening impossibility and third-party intervention, has been rendered unenforceable.
Defendants pray (1) for relief of the court, that the lawsuit be dismissed, with prejudice, on the above-stated grounds, and (2) that defendants’ costs associated with this action be taxed to the plaintiff.