Other excuse doctrines, however, exist at the common lawnamely impossibility and frustration of purpose. I. time.'1 California has indicated that it would accept the view of the Restate-ment in La Cumbre Golf Club v. Santa Barbara Hotel Co.,13 where a golf The court based its ruling in part on Section 264 of the Restatement of Contracts governing impracticability of performance prevented by government regulation or order. This doctrine would be used as a defense in a breach of contract claim that is brought by the plaintiff against the defendant. Thus, her noncompliance with the employment condition was caused by her own decision to retire. [13] Even in the event of a government-issued order, a party asserting impossibility generally must have explored viable alternatives that would permit performance. Per the lease, services at this location must be consistent with other Caff Nero locations in Greater Boston area. Last month, a court in Massachusetts found that a commercial tenants obligation to pay rent had been discharged where the purpose of the lease had been frustrated by the effects of the pandemic. When Performance Becomes Impossible or Unfeasible - Who Bears the Risk? 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. What impossibility is One such defense is that of impossibility. 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. The Court here addressed The Gap's frustration of purpose argument first and posited that the possibility of a government-mandated shutdown wasn't unforeseeable, because it was contemplated in the lease's force majeure event clause. 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. He changed the name of the entity he retained to Custom Model Products and thereafter sold model trains. 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. In the unique context of transactions between merchants, the Uniform Commercial Code carves out an exception and allows the defense of commercial impracticability for contracts that involve the sale of commercial goods. The court granted 1600 Walnut's motion to dismiss Cole Haan's counterclaims. Earlier in February 2023, the Court for the Northern District of California denied the FTC's preliminary injunction motion to prevent the closing of Meta Platforms Inc.'s acquisition. 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. Attorney Fee Provisions in Consumer Contract Arbitration Clauses, Binding Contracts and Legal Actions Predicated on Breach of Contract, Measurement of Damages in Breach of Contract Actions. California courts tend to find impossibility in a case where one of the . 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. We hope that our blog will be of interest to estate planning professionals and to family members immersed in trust and estate disputes. Impossibility, impracticability and frustration of purpose are, as a practical matter, variations on the same theme and often treated interchangeably by courts. To invoke the doctrine of commercial frustration, a party must show that changed conditions have rendered the performance bargained for from the promisee worthless. And such contracts cannot be enforced as they are void. The same rule applies if performance has suddenly become so much more difficult and dangerous than expected as to be "impracticable" (meaning effectively impossible). 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. By using this site, you agree to our updated Privacy Policy and our Terms of Use. Cole Haan argued that its duties under the lease were discharged or in the alternative limited under the frustration of purpose doctrine. The doctrine of impossibility is one of the important principles of equity and has been successfully argued in the taxation matters also. CB Theater argued that the purpose of their movie theater lease, which they identified as operating a movie theater to show new-release films, was frustrated from the time the Florida state government shut down theaters until the theater's actual reopening. Under the defense of impossibility (sometimes referred to as impracticability or commercial impracticability), a party's obligation to perform under a contract is discharged if: (i) after entering into the contract, an unexpected intervening event occurs, (ii) the non-occurrence of the intervening event was a basic assumption underlying the The doctrine of supervening impossibility is applied in the case of (B) Destruction of subject matter. Law Inst. New York courts, for example, consider several factors when determining whether the doctrine of impossibility might excuse a contracting party's performance--the foreseeability of the event occurring, the fault of the non-performing party in causing or not providing protection against the event, the severity of harm and other circumstances affecting the just allocation of risk. Superior Ct., Feb. 8, 2021, 2084CV01493-BLS2). CB Theater argued that both frustration of purpose and impossibility doctrines should excuse or delay their obligation to pay rent under the lease. 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.' 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). (See, Whether performance is excused often depends on the event that makes performance impossible or unfeasible, and whether that event was contemplated under the contract. It also must prove that the force majeure event is the proximate cause of nonperformance. Proving objective impossibility due to the COVID-19 pandemic will likely be easiest for "non-essential" New York businesses that have been required by Gov. UMNV 205-207 Newbury LLC v. Caff Nero Americas Inc. (Mass. All of us enter into dozens of contracts every week. 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. The freedom to contract and the ancillary ability to either enjoy the benefits of the contract or pay the cost of breaching the contract is a treasured right of most Americans. California, on the other hand, excuses . But if an agreement is truly impossible to perform without fault of the party seeking to evade the contract, the defense of impossibility is available, and the defense of impracticality is becoming increasingly supported by the courts in California. Thus, the court held that in all of the leases, since the leases did specifically contemplate the risk of disruption by governmental regulations and allocated that risk via the force majeure clauses, the force majeure clauses superseded the frustration of purpose doctrine. In general, in commercial settings, unanticipated circumstances may excuse a failure to perform contract work completely but only where: an unexpected event occurs without the fault of the party invoking the defense; that event makes further performance impossible or so difficult or expensive as to frustrate the purpose of the contract or destroy its value; and. In this case, The Gap Inc., operators of The Gap and Banana Republic retail stores, sought rescission and reformation of the lease contract based on frustration of purpose and impossibility among other remedies. Find helpful legal articles & summaries on key areas of the law! Impracticability can apply if, after the contract, an unforeseen event occurred to make performance unreasonable difficult or expensive. 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. A typical example is that a war breaks out and a critical component of a product is either impossible to obtain or so expensive that it makes the transaction commercially impractical. COVID-19 has upended the operations of countless California businesses. A party can invoke impossibility and argue that it did not perform its contractual obligations because it was impossible for it to do so. Once again, the court looked to the specific language of the leases to reach its conclusions. 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. Introduction 2. To establish the defense of impossibility, a contractor must show that performance was objectively impossible. For example, in Daversa-Evdyriadis v. Norwegian Air, the U.S. District Court for the Central District of California dismissed a putative class action, alleging that Norwegian Air breached its duty to carry customers under the operative general conditions of carriage (GCC) contract. 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. The trust was drafted by Walter C. Youngman, Jr., a tax attorney and longtime friend (but not blood relative) of Walter Permann. 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 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). But, when a differing site conditions claim isn't available, the mutual mistake doctrine might provide relief when there's a mutual mistake as to the condition of the property that's being improved. 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. 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. 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 doctrine of consideration 3. However, as with the application of the defense of frustration of purpose, even where the impossibility doctrine may apply, but is merely temporary, a partys duty is likely to be suspended only during the time of the impossibility. COVID-19 and Governor Cuomo's Executive Orders have now made the parties' performance under the Lease impossible. This legal doctrine is triggered when something occurs which would make it burdensome for the performing party to act under the contract. A party who is invoking a force majeure provision must show that despite its skill, diligence, and good faith, performance became impossible or unreasonably expensive due to an unforeseen event. 228 Southern California Interdisciplinary Law Journal [Vol. [1] In assessing whether impossibility of performance applies to your situation and your contract, it is useful first to determine whether the jurisdiction applicable to your contract or dispute has codified the doctrine. 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. Appropriately addressing these assumptions can help ensure the availability of these defenses if things go sideways. Copyright 2023, Downey Brand LLP. When any such event or incident arises, which makes the performance of the contract impossible, the contract becomes frustrated or impossible. After Covid-19 swept through New York last spring, Phillips terminated the agreement to auction the painting and JN sued for breach of contract. 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. wex. Impracticability or frustration of purpose may be temporary or partial. In other words, the party may be entitled to some relief based on the unforeseen event, but then must perform once that event has passed. Dorn v. Stanhope Steel, Inc., 368 Pa. Super. 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. Courts often discuss impossibility synonymously with the doctrine of frustration of purpose. In applying the frustration of purpose doctrine, the court here found that while the economic forces surrounding the pandemic were unforeseen by the parties, they amounted to a market change rather than a frustration of purpose. Ten-year Supp. Schwan, Johnson and Ostrosky had worked with Walter for many years and they socialized together. 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. 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 . The most important consideration in understanding whether a force majeure provision may apply is to examine its specific terms and determine which events are covered by the provision. However, some of these mandatory closures may provide a party with an avenue to argue frustration of purpose at least during the period of the mandatory restriction. Impossibility. 2022 American Bar Association, all rights reserved. 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. 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. The appellate court, however, gave Ostrosky another chance. Since she continued to work occasionally for Walter and Custom Model Products after the asset sale, she might be able to show that such work sufficed to meet the condition in the trust in that she was working for a company operated by Walter (albeit not Control Master Products). Walter Permann for decades owned a wire and cable distributing business called Control Master Products.