COVID’S IMPACT ON LEASES PART 2: What About Impossibility?

What is the defense of impossibility?

The doctrine of impossibility is an affirmative defense that excuses certain breaches of contract. (“Affirmative defense” means a defense raised by the defendant in answering a complaint alleging breach of contract). Generally, the defense applies when someone makes a promise they are unable to perform because of a change in circumstances that occurred after the contract was entered into. In legalese this is referred to as a “supervening impossibility”. Another key point is the doctrine recognizes that the contract is valid and enforceable, but when a court or jury finds that the doctrine applies, the doctrines operates to “excuse” performance. The defense of impossibility is distinct from a force majeure clause in a contract because the defense need not be in a contract, whereas a force majeure clause is a specific contractual provision that may define conditions in which performance is excused.

When might the doctrine of impossibility apply?

Typically, impossibility may excuse a party from performing its contractual obligation in circumstances such acts of God, supervening illegality, death or disability of a person required to perform, war, and labor strikes. The defense does not apply if the person who seeks to be excused from performing is at fault for making the performance impossible in the first place.

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What is not a supervening circumstance that makes performance impossible?

Financial hardship and most unexpected difficulties. Courts are nearly uniform in ruling that a price increase, or an increase in the burden of performing, even if unanticipated, is not sufficient to establish that performing a contractual promise was impossible. A key issue is whether the risk was one that reasonably should have been anticipated at the time of contract formation and, if so, whether it should have been addressed in the contract.

What have courts said about impossibility in the context of epi(pan)demics like COVID-19?

Naturally, no case concerning COVID-19 and impossibility has yet found its way through the courts. But courts considered such questions a century ago in connection with influenza and diptheria outbreaks:

  • Crane v. School Dist. No. 14 of Tillamook Cty., 95 Or. 644 (1920)—holding that the closing of a school by a health officer on account of an influenza epidemic was not a sufficient to establish the defense of impossibility because, in part, the closing of the school did not necessarily suspend the need for transporting students.
  • Gregg School Township v. Hinshaw, 76 Ind. App. 503 (1921)—holding that where a school closed because of a flu epidemic, a district’s contract with a teacher was impossible to perform and the teacher was not entitled to payment for the period the school was closed because of the epidemic.
  • Napier v. Trace Fork Mining Co., 193 Ky. 291 (1921)— holding that where a construction contract entitled a contractor to an bonus payment for completing the work before a certain date, the contractor’s completion after that date did not entitle the contractor to the bonus payment even though performance before that date was rendered impossible by the prevalence of the influenza epidemic.
  • Sandry v. Brookyn Sch. Dist. No. 78, 47 N.D. 444 (1921)—holding that a school district was excused under the impossibility doctrine from paying a school bus driver during a three-month period in which the school was closed because an influenza epidemic.
  • Phelps v. School Dist. No. 109, 134 N.E. 312 (Ill. 1922)—holding a school not relieved of liability to pay teacher during a closure caused by diptheria because the spread of a contagious epidemic was something foreseeable that could have been addressed in a contract of employment.
  • Poss v. The Western Assurance Co., 75 Tenn. 704 (1881)—holding a policy of insurance against loss by fire that voided coverage if manufacturing “shall cease to be operated” did not apply where the factory temporarily shut down because of a deadly epidemic.

Before a landlord responds to a tenant’s claim that the lease is impossible to perform, both the lease and local law should be reviewed. Impossibility does not dispute the validity of the contract, but is a legal “excuse” that might allow a court to not hold a party liable for failing to perform their end of a bargain.

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