R2d § 263
Destruction, Deterioration, or Failure to Come into Existence of Thing Necessary for Performance
If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.
Professor's notes
Section 263 is a specific application of the general impracticability rule in R2d § 261. It provides that where the existence of a specific thing is necessary for performance, its failure to come into existence, destruction, or deterioration making performance impracticable is an event the non-occurrence of which was a basic assumption of the contract. When that event occurs without fault, the duty to perform is discharged.
The doctrinal work is to identify which cases fit within § 263's specific category rather than requiring the general § 261 analysis. If the subject matter is a specific identified thing — a particular concert hall, a specific machine, a particular parcel of land — and both parties understood performance depended on that thing, destruction discharges the duty. The rule does not apply when a party merely happened to plan to use a particular source but could perform using other sources; in that case, the party contracted for a result, not for performance from one particular thing.
Paradigm for discharge under § 263: A contracts to let B perform in A's concert hall on May 10. The hall burns down before the performance. Taylor v. Caldwell in Chapter 22 is the classical statement of this rule. Paradigm for non-discharge: A contracts to manufacture and sell 1,000 units and plans to use her factory, which burns down, but similar goods are available from other suppliers. Section 263 does not discharge A because the parties did not contract with reference to that particular factory.
Students routinely over-apply § 263 to any case where one party's plans are disrupted. Ask: did the contract itself identify the specific thing? Did both parties understand that particular thing was necessary? The second question tracks whether the non-occurrence of the thing's destruction was a "basic assumption." A contractor who plans to use a particular quarry but said nothing about it in the contract cannot invoke § 263 when the quarry floods.
Connect to R2d § 261 (general impracticability), R2d § 265 (frustration of purpose), UCC § 2-613 (casualty to identified goods), and the cases in Chapter 22: Taylor v. Caldwell (specific structure), Krell v. Henry (frustration of purpose — distinct from § 263), and Transatlantic Financing (ocean route — § 261 general impracticability).
Text
R2d § 263. Destruction, Deterioration or Failure to Come Into Existence of Thing Necessary for Performance.
If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.