Contract Impossibility and Frustration

On December 31st, 2019, Chinese health officials warned the World Health Organization (WHO) of a cluster of 41 cases of pneumonia caused by an unknown pathogen. This pathogen has later become to be known as COVID-19, a pandemic (as declared by the WHO on March 11, 2020)1 affecting individuals, businesses, and governments worldwide. As of the writing of this article, there are currently over 100,000 cases of COVID-19 across the United States with countless more appearing globally on a minute-by-minute basis. In an effort to stop rampant spread of COVID-19, state and local governments in the United States have moved to both quarantine possibly-affected individuals, as well as massively reduce open businesses and travel.

With these restrictions on both labor and leisure, labor forces and supply chain infrastructure have been substantially disrupted, with countless businesses being unable to meet contractual provisions previously agreed upon. Many businesses have failed to meet their shipment deadlines, loan convenants have gone unmet, services have been canceled. Such “non-performance of a contractual duty” are undoubtedly considered a “breach of contract”2 and may be grounds for the typical forms of relief. However, in certain situations, contracts may include a force majeure provision, effectively excusing non-performance if circumstances arise beyond either party’s control.3

This post addresses a few topics on force majeure as it applies to contracts, impossibility, and frustration as options to excuse the nonperformance of contracts in response to unforeseeable events like COVID-19.

The Force Majeure Doctrine

The term “Force Majeure” is used to describe a “superior force” event.4 Used in the lens of contract law, “force majeure” typically excuses “a party’s performance that is caused by an unforeseen, supervening event not within the control of either party.”5 Such events include “Acts of God,” changes in the governmental landscape, acts of terrorism, and similar widespread, unforeseeable events. The classes of events included in force majeure is intentionally vague,6 allowing “a flexible concept that permits the parties to formulate an agreement to address their unique course of dealings and industry idiosyncrasies.”7

Construction of a Force Majeure Clause

Originally, the force majeure was used as a stand-in for common law idea of physical impossibility of performance of a contract.8 This has further evolved away from true impossibility to a factual “impracticability”9 where performance may be such great difficulty that it is essentially, for all intents and purposes, impossible. This interpretation allows promisors to be excused when, due to a sudden change in circumstance—a force majeure—”the performance still could be performed, but only at excessive and unreasonable cost.”10 Thus, the application of force majeure is determined by terms within the contract itself, very importantly, the kind of performance itself,11 and there is generally a high bar for the use of such a clause.

In determining the applicability of a force majeure claim, the courts must generally consider: (1) the inclusion of a force majeure provision within the contract and whether the event falls within scope; (2) the amount of uncertainty (foreseeability)12 for that event’s occurence; (3) the actual impact on performance.13 The primary lens to examine the applicability of force majeure is through whether the event actually is the cause of the nonperformance of such a contract.14 If this is satisfied, we must also look at whether the event was truly unforeseeability and whether good-faith mitigatory actions could have been and were taken to prevent nonperformance.15

[Work in Progress]

Felix Jen, The University of Chicago Law School, 1L

Edited in part by Keila Mayberry, The University of Chicago Law School, 1L

  1. Tedros Adhanom Ghebreyesus, Director-General, World Health Org., Opening Remarks at the Media Briefing on COVID-19 (Mar. 11, 2020), (“We have … made the assessment that COVID-19 can be characterized as a pandemic.”). [return]
  2. Kasarky v. Merit Systems Protections Bd., 296 F.3d 1331, 1336 (Fed. Cir. 2002) (citing Restatement of Contracts (Second) § 235(2) (1979)). [return]
  3. See InterPetrol Bermuda Ltd. v. Kaiser Aluminum Int’l Corp., 719 F.2d 992 (9th Cir. 1983). [return]
  4. Richard J. Ruszat II, Force Majeure, 104:5 Bus. Credit 54 (May 1, 2002). [return]
  5. Id. [return]
  6. See N.Y. U.C.C. Law § 2-615 (“performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.”). [return]
  7. Ruszat, 104:5 Bus. Credit 54. [return]
  8. P.J.M. Declercq, Modern Analysis of the Legal Effect of Force Majeure Clauses in Situations of Commercial Impracticability, 15 J.L. & Com. 213, 214 (1995) [return]
  9. Mineral Park Land Co. v. Howard, 172 Cal. 289, 293 (1916) (holding that “[a] thing is impossible in legal comtemplation where it is not practicable” but refusing to extend it to merely “showing the existence of conditions which would make the performance of their obligation more expensive”). [return]
  10. Declercq, 15 J.L. & Com. 213, 213 (1995) (cited in note 7). [return]
  11. Richard A. Lord, 30 Williston on Contracts § 77:31 (4th Ed.) (“What types of events constitute force majeure depend on the specific language included in the clause itself.”); See also Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900, 902 (1987) (holding that force majeure defense is narrow and excuses nonperformance “only if the force majeure clause specifically includes the event that actually prevents a party’s performance”); Roland Oil Co. v. R.R. Comm’n. of Texas, No. 03-12-00247-CV, 2015 WL 870232 (Tex. App. Feb. 27, 2015) (”[T]here is no general rule regarding the applicability of force majeure clauses; instead, their scope and application, like every contract provision, depend on the specific language used in the contract.“). [return]
  12. Gulf Oil Corp. v. F.E.R.C., 706 F.2d 444, 453 (3d Cir. 1983) (“To support a definition of force majeure in a warranty contract, we must stress the element of uncertainty or lack of anticipation which surrounds the event’s occurrence.”). [return]
  13. Payne v. Hurwitz, 978 So.2d 1000, 1005 (La.App. 1 Cir 2008) (”[A] fortuitous event must make the performance truly impossible.“). [return]
  14. Kel Kim Corp., 70 N.Y.2d at 902. [return]
  15. Nissho-Iwai Co. Occidental Crude Sales, 729 F.2d 1530, 1541 (5th Cir. 1984) (“No contractor is excused under such an express provision unless he shows affirmatively that his failure to perform was proximately caused by a contingency within its terms; that, in spite of skill, diligence and good faith on his part, performance became impossible or unreasonably expensive.”) (emphasis added). [return]