The court relied on these same facts the foreseeability of a government-mandated shutdown and the stores' curbside pickup sales to also deny The Gap's impossibility doctrine argument. 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. 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. When Performance Becomes Impossible or Unfeasible - Who Bears the Risk? The doctrine the . The New York state government ordered the closures of nonessential businesses in March, and The Gap temporarily closed all of its stores in the United States, Canada and Mexico the same month. Third, impossibility also arises if, after the parties sign the contract, a new law comes into being that makes performing illegal. 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. Documentation will be key if forced to establish one of these defenses down the road. CB Theater further argued that the lack of new film releases due to suspended film production as well as consumer reluctance to return to the theater continued to frustrate the purpose of the lease even after the state government approved theater reopenings at reduced capacity. In a survey of cases in federal, state and bankruptcy courts, commercial tenants seeking to delay or excuse the payment of rent because of pandemic-related downturns in business sometimes looked to the equitable doctrines of frustration of purpose and impossibility for relief. Mere difficulty, or unusual or unexpected expense, would not excuse him. In Snow Mountain W. & P. Co. v. Kraner, 191 Cal. Dorn v. Stanhope Steel, Inc., 368 Pa. Super. This is an order on a Motion for Summary Judgment by CAB Bedford, the landlord. The ability to control ones own personal and business future by electing what obligations to undertake is central to our economic and personal well-being. The landlord responded by terminating the lease and bringing a breach of contract action. To invoke the doctrine of commercial frustration, a party must show that changed conditions have rendered the performance bargained for from the promisee worthless. The tenant, Caff Nero Americas Inc., the operator of a Massachusetts caf, argued under the frustration of purpose and impossibility doctrines that the sought-after rent payments were excused. Learn more at downeybrand.com. . As one expert once stated, the freedom to contract is akin to the freedom to engage in the world of commerce either as vendor or consumer. 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? 589, SELECTED READINGS ON THE LAW OF CONTRACTS (1931) 979; Woodward, Impossibility of Per- . Ambiguity In Contracts-What Do The Courts Do? ), 2020 N.Y. Slip Op. Impossibility 3. Since then, an evolving patchwork of federal, state, and local government shutdown orders and travel restrictions has challenged the ability of businesses to comply with contract obligations created prior to the outbreak of the virus. On the other hand, if the risk that such an event could happen was one that the parties should reasonably have anticipated, or if the contract assigned that risk to one of the parties, then the Court normally would not excuse further performance. Schwan, Johnson and Ostrosky thus could not meet the condition of being employed by Control Master Products. wex. Florida, Miami Div., Jan. 27, 2021, 2021 WL 564486). Impracticability can apply if, after the contract, an unforeseen event occurred to make performance unreasonable difficult or expensive. 1. 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. A year after the Covid-19 pandemic came to the U.S., more courts are showing a willingness to accept force majeure, impossibility or impracticability, and other defenses to excuse contract obligations in situations caused by the pandemic. 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. Youngman lost the bequest that his friend had given him and also apparently had to pay legal expenses of the other parties. The First District Court of Appeal took up this issue in Schwan v. Permann (2018) 28 Cal.App.5th 678, finding that the doctrine of impossibility can excuse a condition precedent. Once again, the court looked to the specific language of the leases to reach its conclusions. Further, the court pointed out that since The Gap eventually commenced curbside pickup sales at the Midtown Manhattan locations in question, the lease's purpose of operating retail stores in Midtown Manhattan was also not frustrated by pandemic itself. The Limits of Force Majeure. Many states strictly construe the doctrine of impossibility. In many instances, even if the doctrine of impossibility might apply in the context of one contract, it may not apply in other contracts on the same project. If the only way to perform would be to go to extreme hardship or expense, it is still possible. Akin to the doctrine of frustration of purpose, the doctrine of impossibility follows much of the same law. Copyright 2023, Downey Brand LLP. While the purchase of roofing material is not rendered impossible by the fire, the purpose for which the materials were contracted is impossible to achieve through no one's fault. For example, in a seminal California case, a tenant who leased commercial space for an auto parts and tire store was barred from using the doctrine of impossibility after governmental regulations on the sale of new tires triggered by WWII made performance impossible, simply because the contract was entered into when the country was debating . 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. Contractual force majeure provisions often contain special notice or timing provisions. As the courts have explained, "impossibility as excuse for nonperformance of a contract is not only strict impossibility but includes impracticability because of extreme and unreasonable difficulty, expense, injury, or loss involved." They buy or lease property. 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. This doctrine is, however, the underlying rationale for some differing site conditions claims. He has substantial expertise litigating and trying complex breach-of-contract matters. 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. 269]; Primos Chemical Co. v. Fulton Steel Corp. Thus, the court focused on whether or not CB Theater was prohibited by government order from opening at all. Even if a contract does not contain a force majeure provision, a party may be able to assert, as an alternative argument, that the purpose of the contract was frustrated by an event, which should thereby excuse its performance. Doctrine of Impossibility of Performance (1920) 18 MICH. L. REV. California Contractual Enforceability Issues Arising in the Wake of COVID-19:Force Majeure, Frustration, and Impossibility, By Cathy T. Moses, Scott R. Laes and Alicia N. Vaz. To the extent courts distinguish between frustration of purpose from impracticability, it is on the basis that no actual impediment to performance exists for either party. 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. Under the law in effect in 1999, a certificate of independent review from such an attorney could validate the bequest to Youngman, i.e., save a gift that otherwise would fail as the presumptive result of undue influence. One noted commentator on New York contract law states: "The doctrine of impossibility may provide a defense where unforeseen government action prevents the performance of a contract." [13] In one case, a court excused a fabric supplier from performing under a supply contract where the government requisitioned all cloth materials to meet wartime . The court granted 1600 Walnut's motion to dismiss Cole Haan's counterclaims. Impracticability may excuse performance when a party can prove that the performance would be unreasonably difficult, expensive, or when injury or . In 1999, he established a trust that offered distributions to three Control Master Products employees (Schwan, Johnson and Ostrosky) if they remained employed when he and his wife were deceased. John McIntyre is a litigation partner in Reed Smiths Pittsburgh office. The Absence of a Force Majeure Clause. Michigan and California, however, have expanded the doctrine to include not only instances of strict impossibility but also when performance would be impracticablean easier standard to establish. Impossibility is usually defined to mean that there was literally no possible way for the party to perform its duties. Thus, with respect to COVID-19, if a partys failure to perform is caused by another event and not the pandemic, that party may not be able to invoke the force majeure clause. "Impossibility" is thus a doctrine "for shifting risk to the party better able to bear it, either because he is in a better position to prevent the risk from materializing or because he can. 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. We discuss trust contests, will contests, and administration disputes. 435-450; 4 Cal.Jur. All of us enter into dozens of contracts every week. The Hadley doctrine requires the shipper to mitigate damages by taking subsequent . As such, the court found that the tenant was not in default under the lease. 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. The doctrine excuses contractual performance when the performance is rendered objectively impossible either by operation of law or because the subject matter of the contract has been destroyed. The doctrine of impossibility of performance will excuse performance of a contract if the performance is rendered impossible by intervening governmental activities. While commercial tenants sometimes use these doctrines in tandem, they are distinguishable in their underlying aims. This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners. We follow how California courts grapple with dementia attributed to Alzheimers disease, which is becoming more prevalent in our population. Doctrine of supervening impossibility. When a court looks at this type of legal dispute, it will have to look at the condition of the performance based on the circumstances that . The contract contained a force majeure provision that permitted Phillips to terminate the agreement without liability for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood and several other possible contingencies, none of which included an epidemic or a pandemic. 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. 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. Sometimes, subsequent to the formation of a contract, an impossibility arises with regard to its performance. Although each contract will have its own unique issues that should be considered in assessing the parties rights and obligations, below is a basic discussion of these defenses under California law. Learn more about a Bloomberg Law subscription. But whereas proof of objective impossibility may be relatively easy for a manufacturer that has been forced . The appellate court, however, gave Ostrosky another chance. While impossibility comes into play infrequently in California trust and estate disputes, the doctrine allows some flexibility in the terms of trusts and wills so as to achieve an equitable result. Force majeure clauses are often included in commercial contracts to excuse a partys performance hampered by various mutually agreed-to events such as fires, hurricanes, and terrorist attacks. 187-192; Taylor v. Is the beneficiary out of luck for reasons beyond his or her control? CAB Bedford LLC v. Equinox Bedford Ave Inc. (2020 WL 7629593 (N.Y. The event must be such that the parties cannot reasonably foresee it happening and it cannot be something within the parties control. These tests of the frustration of purpose and impossibility doctrines across a broad spectrum of courts highlight the importance of negotiating a well-drafted commercial lease. The court decided that the government travel ban between the U.S. and Europe rendered performance impracticable. Downey Brands Trust and Estate Litigation Group has the experience and depth of knowledge to help advance your interests. The doctrine applies where performance is subsequently prevented or prohibited by a judicial, executive or administrative order made with due authority by a judge or other officer of the United States, or of any one of the United States. This doctrine would be used as a defense in a breach of contract claim that is brought by the plaintiff against the defendant. For example, a commercial tenant may argue that because its doors were ordered to be closed, the reason the tenant entered into the lease to operate its business is no longer possible. The party asserting the defense of impossibility has the burden to prove the following elements: (1) a supervening event made performance impossible or impracticable; (2)the nonoccurrence of the event was a basic assumption upon which the contract was based; (3) the occurrence of the event resulted without the fault of the party seeking to be excused; (4)the party seeking to be excused did not assume the risk of occurrence; and (5) the party has not agreed, either expressly or impliedly, to perform in spite of impossibility or impracticability that would otherwise justify nonperformance.