## Facts

- Karl Wendt Farm Equipment Co., Inc. operated as an authorized farm equipment dealer in Marlette, Michigan.
- In 1974, Wendt and International Harvester (IH) entered a Dealer Sales and Service Agreement establishing the dealership relationship and prescribing specific termination procedures.
- A severe downturn occurred in the farm equipment market, and IH decided to exit the farm equipment business.
- IH sold its farm equipment division to J.I. Case Co. and Tenneco Inc. in an asset sale; the buyer did not acquire IH’s dealer franchise network but gained access to IH dealers and selectively offered new franchises.
- Wendt did not receive a new franchise after the sale and alleged that IH’s actions effectively terminated the dealership contrary to the agreement.
- Wendt sued IH for breach of contract and related theories; IH counterclaimed for amounts Wendt owed on its account.
- The district court permitted IH to present impracticability (and related excuse doctrines) to the jury based on market conditions; the jury largely found for IH on Wendt’s claims, and the court entered a deficiency judgment against Wendt on IH’s counterclaim.
- Wendt appealed the submission of impracticability and related rulings; IH cross-appealed on issues involving defenses and the judgment.

## Issues

1. Whether, under Michigan law, IH could invoke impracticability of performance (or frustration of purpose) based on severe market decline and financial losses.
2. Whether IH could terminate the dealer agreement without contractual liability by selling its farm equipment division and withdrawing from the market despite specific contractual termination procedures.
3. Whether the district court properly resolved IH’s other affirmative defenses and properly entered a deficiency judgment on IH’s counterclaim.

## Decision

- The Sixth Circuit reversed in part and remanded in part, and affirmed in part.
- The court held that IH’s asserted economic hardship and market shifts did not, as a matter of law, constitute impracticability or frustration of purpose under Michigan law.
- Because the jury was allowed to consider an invalid impracticability defense, the verdict for IH on Wendt’s contract claim could not stand; the case was remanded for further proceedings on breach and damages without that defense.
- The court affirmed the district court’s disposition of IH’s other defenses and affirmed the deficiency judgment against Wendt for amounts owed to IH.
- A dissent would have upheld the jury verdict, viewing the market collapse as sufficiently extraordinary to support excuse.

## Legal Principles

- Economic hardship, market shifts, and financial loss ordinarily do not discharge contractual duties on impracticability grounds under Michigan law.
- Impracticability requires more than increased difficulty or expense; the supervening event must be extreme and its nonoccurrence must have been a basic assumption of the contract.
- Frustration of purpose applies only when a supervening event substantially defeats the contract’s principal purpose and the event’s nonoccurrence was a basic assumption of the agreement; loss of expected profitability is insufficient where the central purpose is a continuing commercial relationship.
- A party generally may not avoid contractual termination procedures (and related liability) by restructuring or selling a business when the contract specifies how termination must occur.

## Conclusion

The Sixth Circuit held that IH could not use impracticability or frustration of purpose to excuse compliance with a dealership agreement merely because a severe recession made the business unprofitable, requiring retrial of Wendt’s breach and damages claims while leaving intact the deficiency judgment for IH on Wendt’s debt.


Karl Wendt Farm Equip. Co. v. Int'l Harvester Co., 931 F.2d 1112 (6th Cir. 1991)