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. We comment on local court practices, including procedures in Department 129 (the probate unit) of Sacramento County Superior Court. California courts have explained that: "A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost." City of Vernon v. City of Los Angeles (1955) 45 Cal. 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. As such, the court found that the tenant was not in default under the lease. Defining impossibility in a particular situation can call for complex legal and factual analysis. Impracticability may excuse performance when a party can prove that the performance would be unreasonably difficult, expensive, or when injury or . 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. 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. California courts may excuse a partys non-performance of a contractual obligation if such an unforeseen event occurs and prevents the party from performing. 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. 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 The doctrine of impossibility of performance excuses a tenant's performance "only when the . (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. Our lives are surrounded by contractual obligations we undertake constantly. If the only way to perform would be to go to extreme hardship or expense, it is still possible. This article shall discuss the essential elements of the impossibility defense in California. 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. Reed Smith partner John McIntyre explains. Walter included these provisions to incentivize his key employees to remain at the company following his death as his wife was not involved in running it. Cole Haan argued that its duties under the lease were discharged or in the alternative limited under the frustration of purpose doctrine. Impracticability means the excuse in performance of a duty. In the leading California case approving this expanded meaning, Mineral Park Land Co. v. Howard, 172 Cal. Absent extraordinary circumstances, losing money is not a legal defense to a breach of contract action. 228 Southern California Interdisciplinary Law Journal [Vol. CA MANOJ NAHATA 19/10/2021 26/06/2022. A business owner in California filed suit against its insurance carriers after it was required to close due to the State of California's Executive Order N-33-20 and other public health orders . 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. 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. Notably, economic hardship, even that resulting in bankruptcy or insolvency, does not constitute a factor bearing on the determination of impossibility. In assessing the tenant's frustration of purpose argument, the court looked at the lease holistically, stating that a shutdown lasting a few months does not frustrate the purpose of the entire 15-year lease. Generally, however, the doctrine of frustration of purpose has been applied narrowly, and courts generally find that it does not apply except in very narrow circumstances. 330 Views. 34296(U)(Trial Order)). 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. 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. Code, 1511; 6 Cal.Jur. Co. v. American Trading Co., 195 U.S. 439, 467-68 [25 S. Ct. 84, 49 L. Ed. . The focus of the courts on the specific language of each lease highlights the importance of careful and specific lease drafting. All Rights Reserved. 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 Once again, the court looked to the specific language of the leases to reach its conclusions. Thus, her noncompliance with the employment condition was caused by her own decision to retire. In almost all cases, the fundamental tests which have been applied . 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. Usually not, since the task is simply more difficult, not impossible. The court further noted that the lease's force majeure clause specifically provided that the nonpayment of rent was not an excusable default but instead extended the period of performance for the amount of time the delay caused. 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 contract, and (iii) the intervening event made performance wholly impossible or objectively economically impracticable. A party can invoke impossibility and argue that it did not perform its contractual obligations because it was impossible for it to do so. 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. Akin to the doctrine of frustration of purpose, the doctrine of impossibility follows much of the same law. We discuss trust contests, will contests, and administration disputes. 5407-5411). d (Am. The court granted 1600 Walnut's motion to dismiss Cole Haan's counterclaims. The doctrine of impossibility is available when circumstances occur that render performance of a contract objectively impossible. 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. 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. The impossibility must be the result of an unforeseen event that could not have been protected against in the contract. The court ruled the owner's deletion wholly destroyed the purpose of the contract with the supplier, which excused further performance. Please note that email communications to the firm through this website do not create an attorney-client relationship between you and the firm. The Uniform Commercial Code carves out an exception and allows the defense of commercial impracticability for contracts that involve the sale of commercial goods. Where performance becomes so difficult or costly that the value of the contract to one party is destroyed, continuing that performance to completion may be financially impractical. Attorney Advertising. Historically, the doctrine has played a marginal role in contract law, as parties very rarely invoked it - and almost always without success. The list is endless. A typical example would be a painter not finishing his contractual obligation to paint a home that had burned down during the project. 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. The doctrine of impossibility of performance will excuse performance of a contract if the performance is rendered impossible by intervening governmental activities. Unlike impracticability, there is no need to show any impediment to performance to establish a frustration of purpose defense. The court ultimately held that, under the frustration of purpose doctrine, Caff Nero's obligation to pay rent was discharged during the period in which the caf could not serve food and beverage on the leased premises. Copyright 2023, Downey Brand LLP. All of us enter into dozens of contracts every week. 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. Sometimes, subsequent to the formation of a contract, an impossibility arises with regard to its performance. 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. "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. The doctrine of impossibility is one of the important principles of equity and has been successfully argued in the taxation matters also. The doctrine of consideration 3. UMNV 205-207 Newbury LLC v. Caff Nero Americas Inc. (Mass. 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. The appellate court concluded that the Legislature did not mean to reject the doctrine of impossibility, but rather sought to modernize California probate laws. 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. Learn more about a Bloomberg Law subscription. 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. Thus, the court focused on whether or not CB Theater was prohibited by government order from opening at all. Doctrine of Impossibility of Performance (1920) 18 MICH. L. REV. 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 . Where the principal purpose of a contract is destroyed, further performance would possibly be excused, absent a contract provision to the contrary. 13:2 The impracticability doctrine evolved relatively recently out of the doctrines of impossibility and frustration of purpose.1 Indeed, until the middle of the nineteenth century, the common law almost always required specific performance of contractual obligations. The court in this case focused on the particularly specific statement of the lease purpose when examining Caff Nero's frustration of purpose argument. When any such event or incident arises, which makes the performance of the contract impossible, the contract becomes frustrated or impossible. Appropriately addressing these assumptions can help ensure the availability of these defenses if things go sideways. COMMERCE. 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. 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 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 key issue is defining what is true impossibility and determining what the actual effect of the impossibility should be. 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. Impracticability: As seen in the example above, a clause can refer to performance being obstructed or delayed, but may . ), 2020 N.Y. Slip Op. 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. Your membership has expired - last chance for uninterrupted access to free CLE and other benefits. In California probate law, impossibility was a recognized concept until 1982, when the Legislature repealed former Probate Code section 142. (See City of Vernon v. City of Los Angeles, 45 Cal. 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. 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. He changed the name of the entity he retained to Custom Model Products and thereafter sold model trains. The statutory restriction on donative transfers to drafters such as attorney Youngman is unyielding even when the evidence shows that the drafter has not done anything wrong. The event must be such that the parties cannot have reasonably foreseen it happening and it cannot be something within the parties' control. 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. In the context of this defense, impossibility means there was literally no possible way for the party to perform its duties. 2022 American Bar Association, all rights reserved. The appellate court concluded that the Legislature did not mean to reject the doctrine of impossibility, but rather sought to modernize California probate laws. It is not sufficient to show that performance was impracticable for the individual contractor-you must prove that performance would have been impossible for any similarly situated contractor. 08.24.20. 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. 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. 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. Even in the event of a government-issued order, a party asserting impossibility generally must have explored viable alternatives that would permit performance. 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. The court in Caff Nero found that Massachusetts Covid-19 restrictions prevented Caff Nero from achieving the primary purpose of the parties agreement in light of the fact that the lease mandated that the premises could only be used to operate a caf with a sit-down restaurant menu. 2d 710, 719 [290 P.2d 841]; 12 Cal.Jur.2d, Contracts, 238, pp. The courts will not grant contractors relief under the impossibility doctrine for discontinuing work under these circumstances. The doctrine of promissory estoppel 4. The landlord responded by terminating the lease and bringing a breach of contract action. Is the beneficiary out of luck for reasons beyond his or her control? 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. The doctrine of supervening impossibility is applied in the case of (B) Destruction of subject matter. 312, 324-325 [216 P. 589], it was held that "Appellant was not absolved from his contract by the natural obstacles intervening, unless they rendered performance practically 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. Impossibility, Frustration, and Impracticality in Contract Law. 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 doctrine of impossibility is one of the important principles of equity and has been successfully argued in the taxation matters also. 557, 584 (1987) (quoting Restatement (Second) of Contracts 261 cmt. The court held that as to the period of time in which CB Theater was closed by government order, the purpose of the lease was indeed frustrated. 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. As a result, cases from around the country have come to differing conclusions as to whether to grant the requested relief. 435-450; 4 Cal.Jur. Our lawyers advocate for clients across Northern California in trust contests, will contests, financial elder abuse litigation, and trust and probate administration disputes. Accordingly, Youngman asked a colleague, who worked in same building, to review the trust with Walter. To invoke the doctrine of commercial frustration, a party must show that changed conditions have rendered the performance bargained for from the promisee worthless. This tip will explore the differences between the three in more detail and provide examples to help improve your understanding. 269]; Primos Chemical Co. v. Fulton Steel Corp. 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 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. [2] A party seeking to invoke the impossibility doctrine under common law must show that the impossibility was produced by an unanticipated event and the event could not have been foreseen or guarded against 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. The trust was drafted by Walter C. Youngman, Jr., a tax attorney and longtime friend (but not blood relative) of Walter Permann. 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. 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. Superior Ct., Feb. 8, 2021, 2084CV01493-BLS2). 34063(U)(Trial Order)). 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. Ordinarily, breaking a contract can give the party who suffered as a result the right to various legal remedies. 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. Schwan, Johnson and Ostrosky had worked with Walter for many years and they socialized together. Philips v. McNease, 467 S.W.3d 688, 695 . The duty to perform is only discharged if, after the cessation of the impracticability, the performance would be materially more burdensome. This blog summarizes several recent cases dealing with this topic. The court rejected UMNV's argument that the lease's force majeure clause barred the frustration of purpose defense, noting that while the force majeure clause contemplated impossibility, it did not contemplate the risk that the performance could be possible while the purpose of the contract was completely frustrated. When Performance Becomes Impossible or Unfeasible - Who Bears the Risk? 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.