Expansion of the Doctrine of Impossibility in California. 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! In the absence of a force majeure provision that might excuse performance under a construction contract, a party might be able to rely, instead, on the common law doctrines of impossibility, impracticability and frustration of purpose. Notably, economic hardship, even that resulting in bankruptcy or insolvency, does not constitute a factor bearing on the determination of impossibility. After Covid-19 swept through New York last spring, Phillips terminated the agreement to auction the painting and JN sued for breach of contract. In February, the Southern District of New York found that the Covid-19 pandemic constituted a natural disaster, sufficient to trigger a force majeure provision in the parties contract. 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. In re CEC Entertainment Inc. (U.S. Bankruptcy Court, S.D. Impracticability may excuse performance when a party can prove that the performance would be unreasonably difficult, expensive, or when injury or . 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. 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. Impracticability can apply if, after the contract, an unforeseen event occurred to make performance unreasonable difficult or expensive. )(Trial Order)). 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. 1981)). The appellate court concluded that the Legislature did not mean to reject the doctrine of impossibility, but rather sought to modernize California probate laws. For example, a roofing contractor would not be in breach for failing to complete a roof on a building destroyed by fire through no fault of his or hers. II. Simon Property Group L.P. v. Pacific Sunwear Stores LLC (2020 WL 5984297 June 26, 2020 (Ind. 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. Turning to the impossibility doctrine, in response to CB Theater's argument that performance of the contract would have been impossible to perform under the circumstances, the court declined to apply the impossibility doctrine to the period in which the theater was fully shut down by government order. 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. 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. Defining impossibility in a particular situation can call for complex legal and factual analysis. Citing Witkin Summary of Law, California courts have 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 impractical. The appellate court, however, gave Ostrosky another chance. 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. A typical example would be a painter not finishing his contractual obligation to paint a home that had burned down during the project. ), 2020 N.Y. Slip Op. 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. This blog summarizes several recent cases dealing with this topic. In the contract setting, impossibility can excuse nonperformance with a condition precedent. Rather, circumstances have changed such that one party's performance is virtually worthless to the other. Sup. For parties negotiating contracts during the pandemic, consider inserting an additional provision related to COVID-19. By, Mr. MANOJ NAHATA, FCA, DISA (ICAI) The doctrine of "Lex non Cogit Ad impossibilia . Thus, the court focused on whether or not CB Theater was prohibited by government order from opening at all. 2d 710, 719-20. 289 [156 P. 458, L.R.A. Note that in agreements between merchants under the UCC different criteria may be applied. Pacific Sunwear argued that its rental payments were in fact not delinquent due to the impossibility doctrine. Address any underlying conditions and assumptions related to (1) the pandemic, (2) present restrictions on construction and (3) the availability of labor and materials. 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 sought to have the employment condition stricken so that they would be eligible to receive property under the trust upon the death of Walters wife. 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. Florida, Miami Div., Jan. 27, 2021, 2021 WL 564486). Known risks assigned by contract will not excuse performance no matter how disastrous the consequence of that risk. Ambiguity In Contracts-What Do The Courts Do? California businesses should review their existing contracts, with the assistance of their counsel, to understand whether these doctrines could apply to upcoming contractual obligations. We explore issues of mental capacity, undue influence, fiduciary duty, and financial elder abuse. And whether the facts justify the impractical defense is a matter of fact for the judge to determine. California courts tend to find impossibility in a case where one of the . 435-450; 4 Cal.Jur. All Rights Reserved. Frustration and supervening impossibility 1. . 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. We comment on local court practices, including procedures in Department 129 (the probate unit) of Sacramento County Superior Court. One such defense is that of impossibility. In a recent Massachusetts case, a General Contractor was permitted to cancel a material contract with a supplier because the owner unexpectedly deleted that material for the Project. Parties should examine their force majeure provisions to ensure that they are providing timely notice in the manner specified by the provision, such as personal service. 692, 697 [109 P. COVID-19 has upended the operations of countless California businesses. It also must prove that the force majeure event is the proximate cause of nonperformance. To establish the defense of impossibility, a contractor must show that performance was objectively impossible. The court here dismissed Cole Haan's frustration of purpose argument, citing the lease's force majeure clause, which stated that the tenant was not relieved of its duty to pay rent even in the event that restrictive governmental laws or regulations prevented performance under the contract. Your membership has expired - last chance for uninterrupted access to free CLE and other benefits. Known risks. 5407-5411). The doctrine of impossibility is a contract law concept and refers to situations in which it is impossible for a party to a contract to perform its obligations under it. 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. The focus of the courts on the specific language of each lease highlights the importance of careful and specific lease drafting. by Ruchi Gandhi March 9, 2022. 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. Even when the doctrines of impossibility, impracticability and frustration of purpose may apply in one circumstance, they may not necessarily be applicable to other contractual agreements. Holland & Knight Retail and Commercial Development and Leasing Blog. 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 frustration (or "frustration of purpose") doctrine excuses a party from its contractual obligations when an extraordinary event completely undermines its principal purpose in making the deal. In 2008, Walter sold the assets of Control Master Products to another company. However, under some circumstances the law may excuse a breach and not hold the breaching party legally responsible. 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 ruled the owner's deletion wholly destroyed the purpose of the contract with the supplier, which excused further performance. 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 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. Under some circumstances, impossibility of performance can excuse failure to perform. 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 Generally, 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. A judge from Contra Costa County Superior Court conducted a bench trial on the dispute. The doctrine of frustration of purpose may be available when unforeseen circumstances undermine a party's principal purpose for entering into the contract. Breaking Ground: West Coast Real Estate and Land Use Blog, Retail and Commercial Development and Leasing Blog, Bankruptcy, Restructuring and Creditors' Rights. As discussed in our article on contracts, the plaintiff in a contract action must show the existence of an enforceable contract, the breach of the contract by the defendants, and the damages caused by the breach. 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. 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. Ry. 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. That provision included "governmental action" as one of the factors excusing a party's obligation to perform. 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. We invite you to follow our blog and to get to know us through our posts. Attorney Advertising. The tenant, Equinox Bedford Ave Inc. operated a gym on the premises and argued that frustration of purpose and impossibility excused their obligation to pay rent during the New York state government shutdown that closed gyms. We hope that our blog will be of interest to estate planning professionals and to family members immersed in trust and estate disputes. ), 2020 N.Y. Slip Op. Impossibility of performance is a doctrine whereby one party can be released from a contract due to unforeseen circumstances that render performance under the contract impossible. Ostrosky, on the other hand, retired just prior to the sale of the companys assets. The doctrine of consideration 3. John McIntyre is a litigation partner in Reed Smiths Pittsburgh office. impossibility. Government measures issued to "bend the curve" of the COVID-19 infection rate may also not meet the impossibility threshold. Third, impossibility also arises if, after the parties sign the contract, a new law comes into being that makes performing illegal. 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. As a result, cases from around the country have come to differing conclusions as to whether to grant the requested relief. On March 11, 2020, the World Health Organization declared Covid-19 a pandemic. As such, the court found that the tenant was not in default under the lease. This is a harder argument to advance since the material supplier can argue that he bears no responsibility for the frustration but is made to suffer more than the roofer. 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. Walter wanted to include a bequest to Youngman. 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. 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. Related doctrines include impossibility of performance, impracticability of performance and force majeure. 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. Impracticability means the excuse in performance of a duty. Where the principal purpose of a contract is destroyed, further performance would possibly be excused, absent a contract provision to the contrary. 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'. Importantly, although absolute impossibility is not required, performance must present "extreme and unreasonable difficulty, expense, injury, or loss to one of the parties" in order to be excused. Co. v. American Trading Co., 195 U.S. 439, 467-68 [25 S. Ct. 84, 49 L. Ed. For example, force majeure provisions in many leases exclude from its application the continuing obligation to pay rent. 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 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 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). But whereas proof of objective impossibility may be relatively easy for a manufacturer that has been forced . What impossibility is One such defense is that of impossibility. To the extent that certain assumptions or conditions are inherent in performance under one contract, ensure that you have taken appropriate steps to preserve the applicability of these defenses downstream. This doctrine would be used as a defense in a breach of contract claim that is brought by the plaintiff against the defendant. Every time you buy a product using an online account or a credit card, you are entering into a contract to pay the credit card company for the product delivered. The doctrines of consideration and promissary estoppel 1. The difference between impracticability and impossibility is that impracticability is still physically possible; however, performance will result in a substantial hardship to the performing party. /content/aba-cms-dotorg/en/groups/construction_industry/publications/under_construction/2020/summer2020/impossibility-impracticability-frustration-of-purpose-in-the-age-of-covid19. 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. We follow how California courts grapple with dementia attributed to Alzheimers disease, which is becoming more prevalent in our population. Cuomo's Executive Order 202.8 to reduce their in-person workforces by 100%. If you entered into a contract after March 11, the reality is that the doctrine of . The 'doctrine of impossibility,' which is codified in California Civil Code Section 1511, may serve as a de facto force majeure clause. 5. The doctrine of impossibility and judicial treatment of force majeure clauses vary from state to state. Contractual force majeure clauses and the doctrines of commercial frustration and impossibility are defenses that are likely to arise with regularity. It granted rental relief under the theory of frustration of purpose only for those periods when CB Theater was legally prohibited from opening and not for periods when CB Theater had the legal right to open but chose not to due to a diminished business environment. Commercial impracticability arises when performance of a contract by a party has become unfeasibly difficult or costly to perform. 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 law often considers performance to be impossible if it is not practicable, and performance is not practical if it can only be done at an excessive and unreasonable cost. 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. Although courts across the country have varied in their interpretations of the frustration of purpose and impossibility doctrines, the language of the underlying lease contract is universally paramount. Once again, the court looked to the specific language of the leases to reach its conclusions. Mature Minors May Seek Removal of Guardians Ad Litem. It is vital for the parties to understand that unless in a commercial setting, increased difficulty or expense will not normally amount to an excuse to evade obligations under the contract. 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. The court then parsed Walters intent with respect to the employment precondition, finding substantial evidence that Walters failure to modify the trust following his sale of the companys assets did not reflect a desire to allow the gifts to Schwan and Johnson to lapse. Do not send any privileged or confidential information to the firm through this website. 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. This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners. It's time to renew your membership and keep access to free CLE, valuable publications and more. Some common grounds or ways to terminate a contract include: Breach of contract; Impossibility or impracticability of performance; Fraud, mistake, or misrepresentation; Invalid or illegal contract; Recission; Frustration of purpose; Completion of the contract; or. 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. 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. 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. codified the doctrine.As in California, the statutory language might provide guidance to or place limitations on its applicability. 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. The trust was drafted by Walter C. Youngman, Jr., a tax attorney and longtime friend (but not blood relative) of Walter Permann. A restaurant is closed due to the coronavirus pandemic. The Hadley doctrine requires the shipper to mitigate damages by taking subsequent . The impossibility/impracticability defense has been addressed in several recent putative class actions against airlines premised on flight cancellations due to the pandemic. In the context of this defense, impossibility means there was literally no possible way for the party to perform its duties. Impossibility. 228 Southern California Interdisciplinary Law Journal [Vol. 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 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. The performance of this Agreement is subject to termination without liability upon the occurrence of any circumstance beyond the control of either party - such as acts of God, war, acts of terrorism, government regulations, disaster, strikes, civil disorder, or curtailment of transportation facilities - to the extent that .
