After a contract has been made, supervening events (such as a fire) may make performance impossible in an objective sense. This is known as impossibility of performance (A doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes impossible or totally impracticable (through no fault of either party).) and can discharge a contract. The doctrine of impossibility of performance applies only when the parties could not have reasonably foreseen, at the time the contract was formed, the event that rendered performance impossible. Performance may also become so difficult or costly due to some unforeseen event that a court will consider it commercially unfeasible, or impracticable, as will be discussed later in the chapter.

QUESTION

Impossibility of Performance

After a contract has been made, supervening events (such as a fire) may make performance impossible in an objective sense. This is known as impossibility of performance (A doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes impossible or totally impracticable (through no fault of either party).) and can discharge a contract. The doctrine of impossibility of performance applies only when the parties could not have reasonably foreseen, at the time the contract was formed, the event that rendered performance impossible. Performance may also become so difficult or costly due to some unforeseen event that a court will consider it commercially unfeasible, or impracticable, as will be discussed later in the chapter.

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After a contract has been made, supervening events (such as a fire) may make performance impossible in an objective sense. This is known as impossibility of performance (A doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes impossible or totally impracticable (through no fault of either party).) and can discharge a contract. The doctrine of impossibility of performance applies only when the parties could not have reasonably foreseen, at the time the contract was formed, the event that rendered performance impossible. Performance may also become so difficult or costly due to some unforeseen event that a court will consider it commercially unfeasible, or impracticable, as will be discussed later in the chapter.
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Objective impossibility (“It can’t be done”) must be distinguished from subjective impossibility (“I’m sorry, I simply can’t do it”). An example of subjective impossibility occurs when a party cannot deliver goods on time because of freight car shortages or cannot make payment on time because the bank is closed. In effect, in each of these situations the party is saying, “It is impossible for me to perform,” not “It is impossible for anyone to perform.” Accordingly, such excuses do not discharge a contract, and the nonperforming party is normally held in breach of contract.

When Performance is Impossible

Three basic types of situations may qualify as grounds for the discharge of contractual obligations based on impossibility of performance:

  1. When one of the parties to a personal contract dies or becomes incapacitated prior to performance.
Example 18.13

Frederic, a famous dancer, contracts with Ethereal Dancing Guild to play a leading role in its new ballet. Before the ballet can be performed, Frederic becomes ill and dies. His personal performance was essential to the completion of the contract. Thus, his death discharges the contract and his estate’s liability for his nonperformance.

 

  1. When the specific subject matter of the contract is destroyed.
Example 18.14

A-1 Farm Equipment agrees to sell Gunther the green tractor on its lot and promises to have the tractor ready for Gunther to pick up on Saturday. On Friday night, however, a truck veers off the nearby highway and smashes into the tractor, destroying it beyond repair. Because the contract was for this specific tractor, A-1’s performance is rendered impossible owing to the accident.

 

  1. When a change in law renders performance illegal.
Example 18.15

Hopper contracts with Playlist, Inc., to create a Web site through which users can post and share movies, music, and other forms of digital entertainment. Hopper goes to work. Before the site is operational, however, Congress passes the No Online Piracy in Entertainment (NOPE) Act. The NOPE Act makes it illegal to operate a Web site on which copyrighted works are posted without the copyright owners’ consent. In this situation, the contract is discharged by operation of law. The purpose of the contract has been rendered illegal, and contract performance isobjectively impossible.

 

Temporary Impossibility

An occurrence or event that makes performance temporarily impossible operates to suspend performance until the impossibility ceases.

Performance Normally Is Only Delayed. Once the temporary event ends, the parties ordinarily must perform the contract as originally planned.

Case in Point 18.16

Keefe Hurwitz contracted to sell his home in Louisiana to Wesley and Gwendolyn Payne for $241,500. Four days later, Hurricane Katrina made landfall and caused extensive damage to the house. Hurwitz refused to pay the cost ($60,000) for the necessary repairs before the deal closed. The Paynes filed a lawsuit to enforce the contract at the agreed-on price. Hurwitz argued that Hurricane Katrina had made it impossible for him to perform and had discharged his duties under the contract. The court, however, ruled that Hurricane Katrina had caused only a temporary impossibility. Hurwitz was required to pay for the necessary repairs and to perform the contract as written. He could not obtain a higher purchase price to offset the cost of the repairs.

 

Performance Can Be Discharged. Sometimes, the lapse of time and the change in circumstances surrounding the contract make it substantially more burdensome for the parties to perform the promised acts. In that situation, the contract is discharged.

Case in Point 18.17

In 1942, actor Gene Autry was drafted into the U.S. Army. Being drafted rendered his contract with a Hollywood movie company temporarily impossible to perform, and it was suspended until the end of World War II in 1945. When Autry got out of the army, the purchasing power of the dollar had declined so much that performance of the contract would have been substantially burdensome to him. Therefore, the contract was discharged.

 

It can be difficult to predict how a court will—or should—rule on whether performance is impossible in a particular situation, as discussed in this chapter’s Insight into Ethics feature.

Insight into Ethics

When Is Impossibility of Performance a Valid Defense?

The doctrine of impossibility of performance is applied only when the parties could not have reasonably foreseen, at the time the contract was formed, the event or events that rendered performance impossible. In some cases, the courts may seem to go too far in holding that the parties should have foreseen certain events or conditions. Thus, the parties cannot avoid their contractual obligations under the doctrine of impossibility of performance.

Actually, courts today are more likely to allow parties to raise this defense than courts in the past, which rarely excused parties from performance under the impossibility doctrine. Indeed, until the latter part of the nineteenth century, courts were reluctant to discharge a contract even when performance appeared to be impossible.

Generally, the courts must balance the freedom of parties to contract (and thereby assume the risks involved) against the injustice that may result when certain contractual obligations are enforced. If the courts allowed parties to raise impossibility of performance as a defense to contractual obligations more often, freedom of contract would suffer.

Legal Critical Thinking

Insight into the Social Environment

Why might those entering into contracts be worse off in the long run if the courts increasingly accept impossibility of performance as a defense?

 

 

ANSWER

 The Implications of Increasing Acceptance of Impossibility of Performance as a Contractual Defense

 

Introduction

In the realm of contract law, the doctrine of impossibility of performance serves as a means to relieve parties from their contractual duties when objective circumstances arise that make performance genuinely impossible or impracticable. However, as courts increasingly accept impossibility of performance as a defense, it raises concerns about the long-term implications for those entering into contracts. This essay will explore the potential drawbacks and negative consequences that could arise from the growing acceptance of this defense in contract law.

 

 The Balance between Freedom of Contract and Injustice

Courts face the delicate task of striking a balance between upholding the freedom of parties to contract and addressing potential injustices that may result from enforcing certain contractual obligations (Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study on JSTOR, n.d.). By allowing parties to frequently invoke impossibility of performance as a defense, the freedom of contract could be undermined. This erosion of freedom of contract may ultimately deter parties from entering into agreements, as they may fear being bound to contracts that could become unenforceable due to unforeseen circumstances.

 

 Unpredictability and Uncertainty

As courts increasingly accept impossibility of performance as a valid defense, it introduces an element of unpredictability and uncertainty into the contractual landscape. Parties entering into agreements rely on the stability and predictability of contract law to assess risks and allocate resources accordingly. If courts become more lenient in discharging contracts based on unforeseen events, it becomes challenging for parties to accurately anticipate and manage the risks associated with their contractual commitments.

 

 Disincentive for Risk Mitigation

The acceptance of impossibility of performance as a defense may discourage parties from taking proactive measures to mitigate risks associated with their contractual obligations. If parties believe that they can easily escape their duties by invoking impossibility, they may neglect to implement safeguards or contingencies that could have otherwise enabled them to fulfill their contractual obligations despite unexpected circumstances. This lack of risk mitigation measures can lead to increased vulnerabilities and a greater likelihood of contract breaches.

 

Undermining Commercial Certainty

Commercial transactions and business dealings rely heavily on the certainty and predictability of contractual obligations. When courts frequently discharge contracts based on impossibility of performance, it undermines the stability and predictability that businesses and individuals depend on (Guirguis 2001). Uncertainty surrounding the enforceability of contracts can deter investments, stifle economic growth, and lead to a general decline in commercial activity.

 

Potential for Opportunistic Behavior

Increased acceptance of impossibility of performance as a defense may create opportunities for parties to exploit this doctrine for their advantage. Parties may intentionally enter into contracts with the knowledge that certain events or conditions could render performance impossible (Tripsas et al., 1995). By invoking impossibility, they can evade their contractual obligations and avoid the consequences of breaching the agreement. Such opportunistic behavior undermines the fundamental principles of good faith and fair dealing, eroding the trust and integrity necessary for robust contractual relationships.

 

Conclusion

While the doctrine of impossibility of performance serves as a valuable tool in contract law to address genuine cases of objective impossibility, an indiscriminate acceptance of this defense could have far-reaching negative implications. By striking a careful balance between freedom of contract and the potential for injustice, courts can maintain the stability, predictability, and commercial certainty necessary for a thriving business environment. A prudent and measured approach to assessing impossibility of performance claims is essential to protect the integrity of contractual relationships and preserve the overall functioning of the legal system.

References

Culpa in Contrahendo, Bargaining in Good Faith, and Freedom of Contract: A Comparative Study on JSTOR. (n.d.). https://www.jstor.org/stable/1339028 

Guirguis, A., & Preston, D. (2001). Unconscionability under the Trade Practices Act: does it undermine commercial certainty?. LAW INSTITUTE JOURNAL, 75(2), 52-56.https://search.informit.org/doi/abs/10.3316/agispt.20011076 

Tripsas, M., Schrader, S., & Sobrero, M. (1995). Discouraging opportunistic behavior in collaborative R & D: A new role for government. Research Policy, 24(3), 367–389. https://doi.org/10.1016/0048-7333(93)00771-k 

 

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