Impossibility: In general, the doctrine of impossibility excuses a party's performance only when the subject matter of the contract or the means of performance renders performance objectively impossible. The courts will not grant contractors relief under the impossibility doctrine for discontinuing work under these circumstances. As stated in 6 Corbin on Contracts, section 1325, page 338: "A performance may be so difficult and expensive that it is described as 'impracticable,' and enforcement may be denied on the ground of impossibility." Though she had health problems and had worked for Control Master Products for 45 years, she did not show that it was impossible for her to continue to work. The duty to perform is only discharged if, after the cessation of the impracticability, the performance would be materially more burdensome. Where performance becomes so difficult or costly that the value of the contract to one party is destroyed, continuing that performance to completion may be financially impractical. The court in Caff Nero found that Massachusetts Covid-19 restrictions prevented Caff Nero from achieving the primary purpose of the parties agreement in light of the fact that the lease mandated that the premises could only be used to operate a caf with a sit-down restaurant menu. The impossibility defense is an excuse to performance that Texas courts will refer to as impossibility of performance, commercial impracticability, or frustration of purposethough the choice of terminology is of no significance, as each is applied identically. For example, the roofer who contracts to buy material for use on a building destroyed by fire may be able to cancel that material contract. Force majeure, frustration, and impossibility are all defenses that companies are likely to encounter in the wake of COVID-19. Each time you purchase a ticket to an event or pay a parking garage, you are contracting to pay dollars for access to space. The key provisions where doctrine of impossibility may be possibly argued are as follows: In order to avail input tax credit by the recipient of goods and/or services, 16 (2) (c) of the CGST Act, 2017 imposes a condition that the supplier should have paid taxes on such supply to the Govt. (Carlson v. Sheehan, 157 Cal. The supplier was ruled entitled to recover for material supplied but not entitled to its profit on the remaining part of its contract that was cancelled. It is not referred to in the Uniform Commercial . The expression force majeure does not denote a common law doctrine. All rights reserved. Ambiguity In Contracts-What Do The Courts Do? A business owner in California filed suit against its insurance carriers after it was required to close due to the State of California's Executive Order N-33-20 and other public health orders . 2d 710, 719 [290 P.2d 841]; 12 Cal.Jur.2d, Contracts, 238, pp. Partial impracticability or frustration occurs when the unexpected, intervening event renders only part of a party's performance impossible, in which case, the promisor must render the part of its performance that is possible. The court in this case focused on the particularly specific statement of the lease purpose when examining Caff Nero's frustration of purpose argument. The court further noted that the lease's force majeure clause specifically provided that the nonpayment of rent was not an excusable default but instead extended the period of performance for the amount of time the delay caused. 2023 Buffington Law Firm, PC All Rights Reserved, Disclaimer| Site Map| Privacy Policy |Business Development Solutions by FindLaw, part of Thomson Reuters, Why Settlement through Mediation is Often the Best Solution to Trust, Business, or Real Estate Litigation, Mediation as an Alternative to Trial in Trust, Real Estate, and Business Litigation. Addressing Louboutin's impossibility argument, the court points out that the pandemic did not bar the tenant from selling its products it merely reduced foot traffic in the store's area. It's time to renew your membership and keep access to free CLE, valuable publications and more. Once again, the court looked to the specific language of the leases to reach its conclusions. The court granted 1600 Walnut's motion to dismiss Cole Haan's counterclaims. The tenant in UMNV 205207 Newbury LLC v. Caff Nero Americas Inc. closed its doors and stopped paying rent in March 2020 after Massachusetts barred restaurants from allowing on-premises consumption of food or drinks. The appellate court, however, gave Ostrosky another chance. Simon Property Group L.P. v. Pacific Sunwear Stores LLC (2020 WL 5984297 June 26, 2020 (Ind. Further, the court noted that nothing prevented CEC Entertainment from opening pizza restaurants or different styles of businesses in the leased space that did not involve arcade games. As such, the court found that the tenant was not in default under the lease. He changed the name of the entity he retained to Custom Model Products and thereafter sold model trains. Instead, the court looked to specific language of a section of the lease titled, "Effect of Unavoidable Delays," which was separate from the lease's force majeure clause. To make out the defense of impracticability, businesses will generally need to show: 1) There was a contingency, the non-occurrence of which was a basic assumption underlying the contract; 2) the risks associated with the contingency were not assigned to either party; and 3) the promisor was not responsible for the difficulties in performance. 882-884). The parties in JN Contemporary Art LLC v. Phillips Auctioneers LLC entered into an agreement in June 2019 to govern the auctioning of a painting that was scheduled to take place in May 2020. In a Chapter 11 bankruptcy filing before the U.S. Bankruptcy Court in the Southern District of Florida, CB Theater, an operator of upscale dine-in movie theaters, sought to delay or excuse the payment of rent due to government-mandated theater shutdowns during the COVID-19 pandemic. Both of these doctrines allow for the argument that a default is excusable under circumstances that were unforeseeable to the parties at the time of the contract's formation. In recent cases where tenants have sought to avoid rent during the pandemic, state and federal courts have looked to the specific terms of each lease, rather than the highly unusual circumstances, to decide whether tenant performance under the lease was excusable due to either frustration of purpose or impossibility. Even though the contract could be very well performed at the time it was entered into, some circumstances may hinder the performance of a contract after its formation. The key issue is defining what is true impossibility and determining what the actual effect of the impossibility should be. 2022 American Bar Association, all rights reserved. New York, for example, sets a high bar (i.e., objective impossibility) and requires not only that the force majeure clause includes a specific trigger event but also that the event is unforeseeable. According to the early version of common law, English courts refused to excuse a party to a contract when an event occurred following the making of the contract that affected one party's ability to execute. Other excuse doctrines, however, exist at the common lawnamely impossibility and frustration of purpose. Under the impossibility doctrine, if a party's contractual performance becomes impossible due to an extraordinary event, she is excused from the contract. What happens when the settlor (i.e., creator) of a trust imposes a condition precedent on receipt of a distribution from the trust, but the condition cannot be met because the circumstances have changed? They enter into contracts with vendors, clients and their own employees. Dorn v. Stanhope Steel, Inc., 368 Pa. Super. 1600 Walnut Corporation, General Partner of L-A 1600 Walnut LP v. Cole Haan Company Store LLC (E.D. While not universal, these decisions may offer some measure of relief to businesses struggling to comply with contract obligations that have become problematic because of the pandemic. One such defense is that of impossibility. Citing Witkin Summary of Law, California courts have specifically held that "force majeure is the equivalent of the common law contract defense of impossibility and/or frustration of purpose: performance of a contract is excused when an (1) unforeseeable event, (2) outside of the parties' control, (3) renders performance impossible or . The court also took care to distinguish the "Effect of Unavoidable Delays" clause from a force majeure clause, under which the failure to timely pay rent would not have been an excusable default. As the force majeure event clause of the lease identified "governmental preemption of priorities or other controls in connection with a national or other public emergency" specifically, the court found that The Gap's frustration of purpose argument fell short (The Gap at 8). As fallout from the pandemic continues, many companies face uncertainty regarding their contractual obligations and whether they or their counterparties have any legal basis to excuse or delay performance in light of the pandemic. The Spearin doctrine was created in 1918, when the Supreme Court held that (1) the contractor is not responsible for defects in the plans and specifications, and (2) the owner's liability is not relieved by the general clauses requiring contractors to visit the site, check the plans, and inform themselves of the requirements of the work. Conclusion 6. Mere difficulty, or unusual or unexpected expense, would not excuse him. Doctrine Of Frustration Of Purpose Unlike force majeure clauses and California Civil Code section 1511, each of which is a defense to be raised to excuse non-performance, the doctrine of frustration of purpose is available as a defense where contractual performance remains possible, but has become valueless. This doctrine, however, cannot be invoked as a defense if a party assumed the risk caused by the event. Courts often discuss impossibility synonymously with the doctrine of frustration of purpose. Retail apparel store owner Pacific Sunwear sought a temporary restraining order (TRO) and preliminary injunction to compel landlord Simon Property Group to allow Pacific Sunwear to reenter its 16 stores in Simon Property Group malls, on which Simon Property Group had changed the locks due to Pacific Sunwear's nonpayment of rent. . Even if a beneficiary may seem to be ineligible to receive a distribution from a trust because a condition has not been satisfied, a court may excuse the condition if it became impossible to meet and if recognizing the excuse would square with the settlors overall intent. There are at least two principles that commonly limit the application of a force majeure clause: if the event (1) made performance impractical and (2) was the cause of a party's nonperformance. Rather, circumstances have changed such that one party's performance is virtually worthless to the other. 289 [156 P. 458, L.R.A. In cases that involve the impossibility defense, one party may argue it was impossible for it to perform, while the other claims it was merely difficult or burdensome. The impossibility doctrine looks at whether the underlying action to be performed in a contract was possible under the circumstances, while the frustration of purpose doctrine analyzes whether the parties can achieve the stated or implied purpose of the contract. Consequently, businesses should continue to evaluate the possible applicability of these and other contract defenses to their existing agreements based on the still-evolving consequences of Covid-19. II. 29].). Akin to the doctrine of frustration of purpose, the doctrine of impossibility follows much of the same law. As a result, cases from around the country have come to differing conclusions as to whether to grant the requested relief. If performance of an act becomes impossible or unlawful, after a contract has been executed, and such impossibility is due to an event which the party undertaking the performance could not prevent, then such contract itself becomes void or one can say that the contract becomes 'frustrated'. 692, 697 [109 P. The courts are clear that circumstances which only make performance harder or costlier than the parties contemplated when the agreement was made do not constitute valid grounds for the defense of "impracticability" unless such facts are of the gravest importance. Unlike impracticability, there is no need to show any impediment to performance to establish a frustration of purpose defense. (See City of Vernon v. City of Los Angeles, 45 Cal. The statutory restriction on donative transfers to drafters such as attorney Youngman is unyielding even when the evidence shows that the drafter has not done anything wrong. Thus, if (as the trial court found) the statute applied retroactively, the certificate of independent review prepared back in 1999 was insufficient to validate the gift. Co. v. American Trading Co., 195 U.S. 439, 467-68 [25 S. Ct. 84, 49 L. Ed. If the event was so unusual and unexpected that the parties could not reasonably have foreseen it, and if it is unfair to place the risk of its happening on either party, then the Court may excuse further performance of the contract on both sides. However, this does not mean that any facts, which make performance more difficult or expensive than the parties anticipated discharge a duty that has been created by the contract (Rest., Contracts, 467, pp. This is an order on a Motion for Summary Judgment by CAB Bedford, the landlord. Government measures issued to "bend the curve" of the COVID-19 infection rate may also not meet the impossibility threshold. The contractual defense of impossibility may be applied where a particular condition, which both parties to the contract assumed would continue when the contract was signed, ceases to exist as a. In cases that involve the impossibility defense, one party may argue it was impossible for it to perform, while the other claims it was merely difficult or burdensome. The doctrines of impossibility, impracticability, and frustration of purpose should be considered as gap-fillers available when no express provision governs the allocation of risk associated with unforeseen events. The 'doctrine of impossibility,' which is codified in California Civil Code Section 1511, may serve as a de facto force majeure clause. Contract language may disallow reliance on the doctrine of impossibility, impracticability or frustration of purpose. The event must be such that the parties cannot have reasonably foreseen it happening and it cannot be something within the parties' control. COVID-19 has upended the operations of countless California businesses. In common law jurisdictions, force majeure is a creature of contract, meaning that the doctrine cannot be invoked absent an express provision authorizing the parties to do so. The doctrine of consideration 3. Parties who may want to rely upon the defenses of impracticability, impossibility or frustration of purpose to either excuse delay or to discharge their contractual responsibilities, should observe these best practices: A party who wishes to rely on these doctrines should first check its contract. Frustration of purpose discharges contractual duties to perform when an unexpected, intervening event--the non-occurrence of which was a basic assumption of the contract--frustrates the underlying purpose of the contract. In this case, tenant Christian Louboutin, a luxury shoe store, sought rescission of the remainder of its lease on the grounds of frustration of purpose and impossibility in light of decreased foot traffic in Manhattan due to pandemic shutdowns. Impossibility is usually defined to mean that there was literally no possible way for the party to perform its duties. The court found that in all three states, parties may specifically delegate the risk of frustration of purpose by contract. I. This blog summarizes several recent cases dealing with this topic. Walter did not amend the trust before he died. If the only way to perform would be to go to extreme hardship or expense, it is still possible, and the obligation is not usually excused. Many real estate contracts contain a force majeure, or act of God, provision that excuses a partys performance of certain obligations if a specified event such as war, earthquakes, strikes, or governmental shutdown occurs. COVID-19 and Governor Cuomo's Executive Orders have now made the parties' performance under the Lease impossible. If the event was so unusual and unexpected that the parties could not reasonably have foreseen it, and if it is unfair to place the risk of its happening on either party, then the Court may excuse further performance of the contract on both sides. Superior Ct., Feb. 8, 2021, 2084CV01493-BLS2). A party should identify the governing law of its contract as jurisdictions may treat these doctrines differently. As the trial court found, Walters purpose was to encourage Schwan and Johnson to continue working for the company, which they did as long as Walter owned it. In re CEC Entertainment Inc. (U.S. Bankruptcy Court, S.D. Also, if Walter had seen a knowledgeable trust lawyer after 2010, the lawyer would have been able to properly document the gift to Youngman under the new statutory scheme so that it would be validated instead of nullified. And whether the facts justify the impractical defense is a matter of fact for the judge to determine. Impossibility 3. In order to be an excuse for nonperformance of a contract, the impossibility of performance must attach to the nature of the thing to be done and not to the inability of the obligor to do it. The doctrine of impossibility is one of the important principles of equity and has been successfully argued in the taxation matters also. impossibility. The doctrine of impossibility or impracticability has evolved to excuse contract performance in certain circumstances due to what are deemed unexpected and radically changed circumstances. Again, the court is likely to balance the equities. California Court Can Apply Impossibility Doctrine, Trustees Beware: The Line Between Protected and Wasteful Litigation Is Thinner Than You Think, California Courts Should Prioritize Hearings on Elder Abuse Restraining Orders, ChatGPT Blog Post on Undue Influence Gets a D, Home Is Where You Lay Your Sombrero Spouse Who Lives Abroad Cannot Serve as Administrator of Husbands Estate, Youre Fired! Defining impossibility in a particular situation can call for complex legal and factual analysis. Impracticability or frustration of purpose may be temporary or partial. Address any underlying conditions and assumptions related to (1) the pandemic, (2) present restrictions on construction and (3) the availability of labor and materials. Impossibility in other systems of law 5. In determining whether such governmental-mandated restrictions would frustrate the purpose of a contract, courts in California have decided that if the regulation does not entirely prohibit the business to be carried on in the leased premises but only limits or restricts it, thereby making it less profitable and more difficult to continue, the lease may not be terminated or the lessee excused from further performance. This doctrine is, however, the underlying rationale for some differing site conditions claims. Here, tenant Cole Haan, a footwear and accessories retailer, permanently vacated one of its storefronts in March 2020 and had not paid rent since that time. Proving impossibility is harder than it may seem. Thus, the court focused on whether or not CB Theater was prohibited by government order from opening at all. When Performance Becomes Impossible or Unfeasible - Who Bears the Risk? While none of the leases specifically enumerated the risk of a pandemic, in all three states the leases did have force majeure clauses that contemplated the risk of governmental regulations disrupting permitted uses. Note that in agreements between merchants under the UCC different criteria may be applied. The court held that as to the period of time in which CB Theater was closed by government order, the purpose of the lease was indeed frustrated. The doctrine of impossibility allows a party to be excused from contractual obligations when an unexpected event occurs that renders its performance under the contract temporarily or permanently impossible. A restaurant is closed due to the coronavirus pandemic. Another case of impossibility is when an item crucial to performance becomes destroyed (through no fault of the defaulting party) and there is no reasonable substitution. Mature Minors May Seek Removal of Guardians Ad Litem. After concluding that the force majeure clauses in the leases in all three states specify that the nonpayment of rent is not a default that would be excused under the clause, the court turned to frustration of purpose under the laws of Washington, California and North Carolina. CAB Bedford LLC v. Equinox Bedford Ave Inc. (2020 WL 7629593 (N.Y. In recent days, certain cities and counties and the State of California have ordered mandatory closures of non-essential businesses or imposed other restrictions in operations through shelter-in-place or safer at home ordinances or orders. In that event, the duty to perform is not discharged but generally is suspended until performance becomes possible. The doctrines of consideration and promissary estoppel 1. In almost all cases, the fundamental tests which have been applied by courts before applying the above legal maxims to the facts of a case, are to see whether the event (i.e., non-compliance with a law) was .
March 14, 2023