Contracts

Impossibility of Performance

Impracticability of Performance

In contracts in which the performance depends on the continued existence of a given person or thing, an implied condition is that the perishing of the person or thing shall excuse performance. (Taylor v. Caldwell 122 Eng. Rep. 309 (1862).)

One is not excused from performance merely because performance becomes more expensive than originally contemplated. Mere unforeseen difficulty or expense does not constitute impossibility and is not ordinarily an excuse. (Transatlantic Financing Corp. v. U.S. 363 F.2d 312 (1966.) Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered. (Day v. U.S., 245 U.S. 159) However, if the contractor is bound to build according to plans and specifications prepared by the owner the contractor will not be responsible for the consequences of defects in the plans and specifications. (U.S. v. Spearin, 248 U.S. 132 (1918). The modern trend is to allow the defense of impossibility when performance is impracticable because of excessive and unreasonable difficulty or expense. The impossibility must be in the nature of the thing to be done (objective impossibility) and not in the inability of the promisor to do it (subjective impossibility).

Where contracts for the sale of goods are concerned UCC 2-615 sets forth three conditions which must be satisfied before performance is excused: (1) a contingency has occurred; (2) the contingency has made performance impracticable; and (3) the nonoccurrence of that contingency was a basic assumption upon which the contract was made.

 

What is a force majeure clause?

An exculpatory clause that excuses performance upon the occurrence of an event beyond a party's control. 

A typical such clause might read:  "The Company shall not be liable for any failure in the performance of its obligations under this agreement which may result from strikes or acts of labor unions, fires, floods, earthquakes, or acts of God, war or other contingencies beyond its control."

Rest.2d § 261 states the general principle under which a party's duty of performance may be discharged due to impracticability. I.e., he may be relieved of that duty if performance has unexpectedly become impracticable as a result of a supervening event. The three categories of cases where this general principle has been traditionally applied are (1) supervening death or incapacity of a person necessary for performance. (2) Supervening destruction of a specific thing necessary for performance. (3) Supervening prohibition or prevention by law. In order for a supervening event to discharge a duty the nonoccurrence of that event must have been "a basic assumption" on which both parties made the contract. The rationale for the defense of commercial impracticability is that the circumstance causing the breach has rendered performance so vitally different from what was anticipated that the contract cannot be reasonably thought to govern.

Frustration of Purpose

Where a party's principal purpose is frustrated by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, the duty of performance is discharged. (Chase Precast Corp. v. John J. Paonessa Co. 409 Mass. 371; 566 N.E.2d 603 (1991).) The requirements for discharge are that: (1) the purpose that is frustrated must have been a principal purpose of that party in making the contract; (2) The frustration must have been substantial; (3) The nonoccurrence of the frustrating event must have been a basic assumption on which the contract was made. (Rest.2d § 265.)

The frustration doctrine means that although it is not impracticable or impossible for the payor to pay, if something has happened to make the performance for which he would be paying worthless to him, an excuse for not paying, analogous to impracticability or impossibility may be proper. The doctrines of impossibility or frustration require that some event must occur, the nonoccurrence of which was a basic assumption of the contract at the time it was made. A good illustration of the frustration doctrine is found in the "Coronation Cases," one of which is Krell v. Henry, 2 K.B. 740 (1903). There, plaintiff made a written contract to rent his apartment to defendant for two days to view the coronation procession of King Edward VII. After the agreement was made the coronation was cancelled because the King fell ill. Defendant then refused to pay the balance of the rent. The court ruled that he was justified in not paying reasoning that the taking place of the processions along the route in front of the apartment was regarded by both parties as the foundation of the contract. At the time of contracting the parties did not contemplate that the procession would not take place.

Remedies In The Event of Discharge

The general rule is that when a contract is discharged by impossibility or frustration the parties must make restitution for the benefits conferred upon them. (Rest.2d § § 272 & 377)

For plain English explanations of contract law, The Essential Contract Law Casebook
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