## Facts

- Arabian Score, a Minnesota limited partnership, agreed to buy an Arabian colt, *Score*, from Lasma Arabian Ltd. for $1 million under a contract governed by Arizona law.
- The price included Lasma Corporation’s obligation to spend $250,000 over five years to promote *Score* as a “2 Star Stallion” in the “Star Stallion Program,” operated under a license with Lasma Star Stallion, Inc. (not a party).
- The contract provided that if Lasma Star Stallion, Inc., “in its sole discretion,” determined *Score* was not eligible for the program, Lasma would, at Arabian’s option, replace *Score* with an eligible stallion or refund the unused portion of the $250,000.
- The contract allocated risk of loss to Arabian at closing; Arabian accepted *Score* “as is” and obtained mortality insurance.
- *Score* sired two foals but died within one year; Arabian could not recover insurance proceeds because the insurer became insolvent.
- Lasma asserted *Score* remained eligible and presented evidence that promoting deceased stallions could increase the value of their progeny and benefit owners.

## Issues

1. Whether *Score*’s death made Lasma’s promotional performance legally impossible or commercially frustrated under Arizona law, entitling Arabian to restitution of unspent promotional funds.
2. Whether *Score*’s death rendered him “not eligible to participate” in the Star Stallion Program under the contract, thereby requiring a refund of the unused portion of the $250,000.

## Decision

- The Eighth Circuit affirmed summary judgment for Lasma Arabian Ltd. and Lasma Corporation.
- Impossibility and commercial frustration did not apply because *Score*’s death was a foreseeable event and the contract placed the risk of loss on Arabian, confirmed by Arabian’s purchase of mortality insurance.
- The inability to collect insurance due to insurer insolvency was a separate risk borne by Arabian and did not reallocate the mortality risk to Lasma.
- The refund condition in paragraph 4 was not met because Lasma Star Stallion, Inc. did not determine, in its sole discretion, that *Score* was ineligible; treating a deceased stallion as eligible was supported by industry practice and not arbitrary or capricious.
- With no genuine dispute of material fact, defendants were entitled to judgment as a matter of law.

## Legal Principles

- Under Arizona law, impossibility and commercial frustration generally require a supervening event that was not reasonably foreseeable and whose risk was not allocated to the party seeking relief.
- A party that assumes a foreseeable risk through contract terms (including risk-of-loss allocation) cannot use impossibility or frustration to shift that loss after the risk materializes.
- A contractual clause giving a third party “sole discretion” to determine eligibility creates a condition precedent; courts enforce the discretionary structure and require a showing of arbitrary or capricious action to set aside the determination.
- Evidence of established industry practice can support the reasonableness of continued performance and defeat claims that performance is meaningless or that discretion was abused.

## Conclusion

The court held that the colt’s death, while significant, was a foreseeable contingency allocated to the buyer, so impossibility and commercial frustration did not permit recovery of unspent promotional funds; the contract’s refund mechanism also did not apply because the program operator did not, in the exercise of its sole discretion, deem the colt ineligible and that decision was not arbitrary or capricious.


Arabian Score v. Lasma Arabian Ltd., 814 F.2d 529 (8th Cir. 1987)