Articles

March 25th, 2020

The Doctrine of Impossibility/Frustration of Purpose

Posted in: Business Law  Featured  Real Estate Law    Tagged: Coronavirus

Author: Richard A. Loube

While a force majeure clause in a contract likely does not excuse the obligation to pay rent or other monetary obligations under a contract, parties to contracts are currently looking for other possible defenses to excuse performance of their obligations.

This is where the doctrine of impossibility may come in. This doctrine is recognized in D.C., Maryland, and Virginia, though with varying differences in each jurisdiction. In plain terms, where an unexpected event occurs that renders performance under a contract impossible, whether permanently or temporarily, a party may be excused from performance unless the risk was assumed by the party.
More specifically, a party must show:

1. The unexpected occurrence of an intervening act;
2. That the risk of the unexpected occurrence was not allocated by agreement or custom; and
3. That the occurrence made performance impossible.

To be clear, depending on the jurisdiction and the type of contract, performance does not have to be impossible. 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.

Courts often discuss impossibility synonymously with the doctrine of frustration of purpose. However, frustration of purpose may exist where performance under a contract is not impossible or impracticable according to its literal terms, but unforeseen circumstances prevent continued performance from effecting one party’s object or purpose for making the contract. Generally, for this defense to be available, both sides must be aware of the party’s main purpose for making a contract

When determining whether the doctrine of impossibility, or frustration of purpose, may be available to a party, it is important to consider the facts and circumstances that existed at the time of execution of the contract, and to review the specific terms of the contract to see if the risk of an unexpected event was assumed by either of the parties. In addition, the availability of this doctrine may depend on the type of contract – e.g., contracts for goods and services; employment agreements; leases and other real estate contracts – as specific rules apply to certain types of contracts.

Whether you are seeking to enforce performance or seeking relief from performance under a contract, in light of the current pandemic and the economic impact caused by COVID-19, it is recommended that you speak with your attorney to determine whether the doctrine of impossibility may apply to your particular circumstances.

You can find more on issues affecting businesses and individuals in our COVID-19 Resource Center.

---