A party can invoke impossibility and argue that it did not perform its contractual obligations because it was impossible for it to do so. In re CEC Entertainment Inc. (U.S. Bankruptcy Court, S.D. And such contracts cannot be enforced as they are void. Walter wanted to include a bequest to Youngman. 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. 589, SELECTED READINGS ON THE LAW OF CONTRACTS (1931) 979; Woodward, Impossibility of Per- . Impracticability can apply if, after the contract, an unforeseen event occurred to make performance unreasonable difficult or expensive. The Gap Inc. v. Ponte Gadea New York LLC (S.D.N.Y., March 8, 2021, WL 861121). wex. In the contract setting, impossibility can excuse nonperformance with a condition precedent. Ordinarily, breaking a contract can give the party who suffered as a result the right to various legal remedies. 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. The Doctrine of Frustration: Section 56 Para 2. To invoke the doctrine of commercial frustration, a party must show that changed conditions have rendered the performance bargained for from the promisee worthless. After Covid-19 swept through New York last spring, Phillips terminated the agreement to auction the painting and JN sued for breach of contract. The appellate court, however, gave Ostrosky another chance. 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 agreement between the parties does not allocate risks of unexpected events arising. 269]; Primos Chemical Co. v. Fulton Steel Corp. Provisions concerning allocation of risk may also impact a party's ability to rely on these doctrines. Ry. Eight days later, California became the first state in the U.S. to issue a stay-at-home order, which mandated that all residents remain confined except to go to an essential job or shop for essential needs. 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. Before courts will apply the doctrine of impossibility, they typically require a showing that the cause of the impossibility was not "reasonably foreseeable." On March 11, 2020, the World Health Organization characterized the outbreak of COVID-19 as a pandemic. The doctrines of consideration and promissary estoppel 1. A judge from Contra Costa County Superior Court conducted a bench trial on the dispute. 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. Government measures issued to "bend the curve" of the COVID-19 infection rate may also not meet the impossibility threshold. Super. The court found that in all three states, parties may specifically delegate the risk of frustration of purpose by contract. 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. 35 East 75th Street Corporation v. Christian Louboutin LLC (2020 WL 7315470 (N.Y. 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. 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. 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. Pacific Sunwear argued that its rental payments were in fact not delinquent due to the impossibility doctrine. Third, impossibility also arises if, after the parties sign the contract, a new law comes into being that makes performing illegal. Our New Normal: Dealing with COVID-19 Concerns in the Workplace, Member Feature: Jeff Cruz, an in-house attorney with a passion for the construction industry, American Bar Association This was a harsh result given that the trial court specifically found that the gift to Youngman was the reflection of a long-standing relationship, not the product of any affirmative fraud or undue influence. 34296(U)(Trial Order)). 557, 584 (1987) (quoting Restatement (Second) of Contracts 261 cmt. This legal doctrine is triggered when something occurs which would make it burdensome for the performing party to act under the contract. 2022, Stimmel, Stimmel & Roeser, All rights reserved| Terms of Use | Site by Bay Design, Impossibility Of Performance As A Defense To Breach Of Contract, In the unique context of transactions between merchants, the Uniform Commercial Code carves out an exception and allows the defense of. . )(Trial Order)). The . 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? A party should identify the governing law of its contract as jurisdictions may treat these doctrines differently. The defense of frustration of purpose may also be available to excuse performance when an unanticipated change in circumstances has defeated the primary purpose of the contract for one of the parties. This article shall discuss the essential elements of the impossibility defense in California. 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. 1916 F 1], the court accepted the defense of impracticability in an action which involved a contract to take all gravel necessary to effect the construction of a fill and complete the cement work on a proposed bridge when the evidence showed that the defendant used all gravel that was available except submerged gravel, the cost of the extraction of which would have been ten or twelve times the cost of removing the surface gravel. COVID-19 has upended the operations of countless California businesses. Related doctrines include impossibility of performance, impracticability of performance and force majeure. Contractors, owners and others want to know whether the pandemic might excuse performance under a contract or whether a contractor might be entitled to recourse for delays associated with labor shortages, supply chain issues, or governmental orders suspending work or imposing restrictions on construction. What impossibility is One such defense is that of impossibility. 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. Reed Smith partner John McIntyre explains. /content/aba-cms-dotorg/en/groups/construction_industry/publications/under_construction/2020/summer2020/impossibility-impracticability-frustration-of-purpose-in-the-age-of-covid19. The impossibility doctrine in Texas. Termination by agreement or by a provision in the contract. Known risks assigned by contract will not excuse performance no matter how disastrous the consequence of that risk. The doctrine of frustration of purpose may be available when unforeseen circumstances undermine a party's principal purpose for entering into the contract. Note that in agreements between merchants under the UCC different criteria may be applied. 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. Temporary impracticability occurs when the unexpected, intervening event renders performance temporarily impracticable. As the world struggles to come to grips with COVID-19, and to prepare for eventual recovery, many in the construction industry are grappling with how the pandemic may impact their projects. To establish the defense of impossibility, a contractor must show that performance was objectively impossible. 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. 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. 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. 902 [1987]). Walter Permann for decades owned a wire and cable distributing business called Control Master Products. The doctrine applies "only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible," and it did not apply as to Kel Kim because its "inability to procure and maintain requisite coverage could have been foreseen and guarded against when it specifically undertook that Under the common law of contract, impracticability is a defense that can be relied on when the duty to be performed becomes unfeasibly difficult or expensive for a party who was to perform. Under contract law, impossibility is an excuse that can be used by a seller as an excuse for non-performance when an unforeseen event occurs after the contract is made which makes performance impossible. And it is up to the defendant to either deny the existence of the contract, deny the breach, deny the damages, or give a valid legal reason why the contract is not enforceable. Of the many ways to legally terminate a contract, CPCU 530 discusses the concept of impossibility and how that differs from frustration and impracticality. Introduction 2. Civil Code Section 1511 excuses a party's performance of a contractual obligation when performance is 'prevented or delayed by operation of law' or by an 'irresistible, superhuman cause.' 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. However, the Legislature amended the statutory scheme in 2010 to add California Probate Code section 21384, which imposed a more stringent independent attorney requirement on the review process. The lease provided that Caff Nero may use premises solely for "the operation of a Caff Nero themed Caf under Tenant's Trade Name and for no other purpose" (Caff Nero at 2). 1. 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. CA MANOJ NAHATA 19/10/2021 26/06/2022. All of us enter into dozens of contracts every week. California businesses should review their existing contracts, with the assistance of their counsel, to understand whether these doctrines could apply to upcoming contractual obligations. Known risks. Schwan and Johnson thus complied with the trusts terms as far as they possibly could. Because of this, the tenant could argue that it receives no value from the lease, and should be relieved of the obligation to pay rent. Our lives are surrounded by contractual obligations we undertake constantly. (U.S. Bankruptcy Court, S.D. 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. However, despite severe economic consequences, further performance may not be legally excused unless the direct cause of the difficulty could never have been foreseen. The court reviewed decisions from California and other jurisdictions, concluding that by 1982 the modern rule recognized impossibility as an exception to the rule enforcing conditions precedent. The expression force majeure does not denote a common law doctrine. Under the impossibility doctrine, if a party's contractual performance becomes impossible due to an extraordinary event, she is excused from the contract. 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. 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. 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. Start resolving your legal matters - contact us today! The doctrine of impossibility is one of the important principles of equity and has been successfully argued in the taxation matters also. All Rights Reserved. Once again, the court looked to the specific language of the leases to reach its conclusions. The attorney concluded that Walter was acting of his own free will with respect to favoring Youngman and executed the certificate. In California probate law, impossibility was a recognized concept until 1982, when the Legislature repealed former Probate Code section 142. Founded in 1939, our law firm combines the ability to represent clients in domestic or international matters with the personal interaction with clients that is traditional to a long established law firm. "[T]he impossibility must be produced by an unanticipated event that could . This blog summarizes several recent cases dealing with this topic. California courts tend to find impossibility in a case where one of the parties died or suffered incapacitation, which would make it impossible for that person to perform. 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 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. 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. The Limits of Force Majeure. By using this site, you agree to our updated Privacy Policy and our Terms of Use. The doctrine of impossibility is one of the important principles of equity and has been successfully argued in the taxation matters also. 187-192; Taylor v. By, Mr. MANOJ NAHATA, FCA, DISA (ICAI) The doctrine of "Lex non Cogit Ad impossibilia . We explore issues of mental capacity, undue influence, fiduciary duty, and financial elder abuse. 1931, pp. Many states strictly construe the doctrine of impossibility. 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.