D. Phil Oxon; Docteur (honoris causa) Paris/Dauphine University; Thomas Pickles Professor of Law and Co-Director of the Eason Weinmann Center for International and Comparative Law, Tulane University.
The American Journal of Comparative Law, Volume 70, Issue Supplement_1, October 2022, Pages i70–i88, https://doi.org/10.1093/ajcl/avac017
12 September 2022Vernon Valentine Palmer, Excused Performances: Force Majeure, Impracticability, and Frustration of Contracts, The American Journal of Comparative Law, Volume 70, Issue Supplement_1, October 2022, Pages i70–i88, https://doi.org/10.1093/ajcl/avac017
Navbar Search Filter Mobile Enter search term Search Navbar Search Filter Enter search term SearchThis Report is written at a time of intense suffering and uncertainty, as a global pandemic spreads to the far corners of the world, causing untold deaths, sickness, crowded hospitals, supply shortages, business closures, disrupted supply lines, and other distressing conditions. In response to this crisis, a flurry of governmental decrees have been imposed at all levels, shutting down restaurants, theatres, and schools, prescribing masks, vaccinations, distancing, telework, and so forth. Given the wide scope of the Questionnaire which I was asked to answer, this Report will not focus on the pandemic and its effects on contractual enforcement in the United States, but at the same time the Report makes no attempt to escape or ignore the pall hovering over the international community. At various places, I have made incidental attempts to illustrate how the pandemic fits within the existing law on excused performances. Obviously, it is provoking a flood of cases in the courts, but this Report comes during the early phases of the judicial response, a time when the picture is far from complete and cannot be properly assessed. In a sense it is not anticipated that Covid 19 will produce fundamental doctrinal changes in the common law of the United States. Rather, it will produce changes and important insertions in the so-called force majeure clauses of future contracts, but those clauses are not the common law to which the Questionnaire is addressed, but rather the drafter’s reaction to it.
It is to be expected, however, that this widescale crisis with all its human and economic repercussions may fortify and intensify our understanding of others’ laws. Since the phenomenon is global and all are affected, the comparative lawyers have an urgent duty to use this occasion to consider the laws and doctrines of other legal systems.
Guenter Treitel noted in his work Frustration and Force Majeure that the subject of excused performances involves the conflict between two principles. 1 On the one hand there is the principle of the sanctity of contract which finds expression in the Latin phrase pacta sunt servanda. This principle insists upon the literal performance of contracts even though a supervening event has occurred that interferes with the debtor’s performance or that reduces the value of the creditor’s counter-performance. It is rooted in the idea that one main purpose of a contract is to allocate the risk of such events and once the risk is allocated by the contracting parties, the courts should not reallocate them.
On the other hand, this subject is about the counter-principle of “changed circumstances” which is expressed in another Latin phrase clausula rebus sic stantibus. The principle of “changed circumstances” (imprévision in French) recognizes that parties often enter contracts on the basis of certain shared but unexpressed assumptions, and being busy rather than clairvoyant, they do not foresee a circumstance that may destroy a basic assumption on which they contracted. This principle recognizes that a debtor’s performance ought to be excused when the unforeseen circumstance imposes unreasonable hardship or “extreme onerosity,” even though his performance is not absolutely impossible.
It is the harmonization or reconciliation of these conflicting principles that lies at the heart of the law on excused performances. But before turning to consider the subject in detail, it may be helpful to discuss some terminological difficulties that call for clarification.
In the United States, a confusing array of terms, with overlapping meanings and uncertain applications, have been used to describe the conditions of excused performance. Courts and writers sometime refer to impossibility (objective or subjective), impracticability of performance, frustration of purpose, and force majeure.
The oldest defense recognized by the common law was simply called “impossibility.” In its original meaning impossibility formed an extremely narrow and rare exception to the stern maxim pacta sunt servanda. Nothing other than an “objective” impossibility was recognized as an excuse. 2 It was no defense to show that, subjectively, the promisor was unable to perform. It followed that no obligation to pay money, such as payment of rent or the price, could ever be excused, since monetary obligations are generic in nature and never “objectively” impossible to perform. Given later developments that superseded this absolute view, any continued use of the old term “impossibility” by the courts is at least anachronistic, if not quite misleading. Nevertheless, courts in some jurisdictions in the United States, including New York, still employ the term. 3
The old notion of impossibility was later abandoned when courts began to recognize the somewhat more flexible and softened defenses called “impracticability of performance” and “frustration of purpose.” These defenses widened the boundaries of excused performance and recognized that even when a promised performance was literally possible, it might nevertheless be impractical or frustrated and ought to be excused.
In the United States, a clear distinction is maintained between the doctrines of “impracticality of performance” and “frustration of purpose.” They have separate spheres of application and are generally distinguished by using their proper names. Under English common law, however, the lines between the two are blurred at the level of terminology. “Impossibility” is treated as but one example of a general category called “frustration.” 4 At some point English law allowed impossibility of performance to be absorbed into the category of frustration of contract. 5
The expression force majeure does not denote a common law doctrine. It is not referred to in the Uniform Commercial Code (UCC) nor in the Restatement (Second) of Contracts. The term is nevertheless widely used and well-known because courts are frequently called upon, particularly with respect to commercial contracts, to interpret so-called “force majeure clauses.” Here, force majeure is only a convenient phrase borrowed from the French. Such clauses are strictly construed by the courts. They usually enumerate a list of supervening circumstances that the parties agree will excuse performance. 6 Because a force majeure clause is the law between the parties, and because the common law rules on excused performances are not rules of public order, the courts may excuse performance whether or not a designated event would qualify as an excuse recognized by the common law. The clause supersedes the requirements of the common law. For example, once the parties specify an excusing event in the force majeure clause there is not any need on the part of the debtor to show that the occurrence of it was unforeseeable. 7 One must not presume, however, that these clauses are self-executing. Due to a variety of reasons (e.g., inartful drafting, strict interpretation, failure of burden of proof) they may fail to excuse an obligor under the circumstances. 8
Force majeure in the French legal tradition has a different role and significance. It is the short-hand expression for the defense of “impossibility,” a defense arising by operation of law under the Code Civil. 9 The defense applies when three basic conditions are satisfied: irrésistibilité, imprévisibilité, and extériorité. As stated previously, in the United States, the same term refers to contract clauses which derogate from the common law doctrines. One should bear in mind that similar clauses are found in international contracts, including those drafted in France and other continental countries. When found in those contracts they are also referred to as force majeure clauses.
In attempting to make substantive comparisons between French law and United States law, a common lawyer should carefully restrict the term “force majeure” to mean a contractual provision designed to modify or overcome the default rules of the common law. At the same time, he or she would do well to realize that the main common law defenses in modern law—impracticability and frustration—do not match the Code Civil’s doctrine of force majeure, except in a broad functional sense.
It has been said that at common law there are three kinds of events that produce an almost automatic excuse for non-performance. 10 These excuses were well-established before the “modern synthesis” found in the UCC and Restatement came into being. 11 Even today it can be said that nearly all cases of impossibility or impracticality still fall into one of these three categories. The Restatement (Second) of Contracts signals their importance by devoting a separate section to each of them. 12 It is interesting that the pandemic might qualify as an excusing event in at least two of these situations:
The supervening death or incapacity of a person who was to perform skilled, unique or highly personal services, such as a portraitist, an architect, a writer. Here, consideration of the person is perhaps the principal reason for the engagement. Since the debtor may have unique abilities or talents that no substitute can fill, his supervening death or incapacity is seen as making performance impossible. 13 Thus the estate of a famous singer who had hired a music director to render services “exclusive to me” was excused from making further payments of the director’s salary. 14 The court reasoned that each party entering into the agreement relied upon personal skills, talents, or characteristics which no one other than the other contracting party could provide, and both parties were excused from further performance.
The pandemic has undoubtedly caused the death or disability of many individuals who were to provide or receive such services.
Supervening illegality which prohibits performance of the contract, such as a law forbidding the export of certain goods or an executive order shutting down a type of business. 15 Governments attempting to stem the spread of Covid 19 have passed hundreds of laws and decrees that impact contracts which were concluded before the pandemic was known or foreseen. For example, the Covid-inspired travel ban on flights to Europe in March 2020 caused massive cancellation of pre-booked flights and created a large backlog of ticket refunds. In Daversa-Evdyriadis v. Norwegian Air Shuttle, a class action was filed on behalf of passengers claiming breach of contract for the airline’s allegedly unreasonable delay in issuing refunds. 16 The court ruled, however, that plaintiffs’ contract with the airline did not mandate (as alleged) that refunds had to be made within seven days, and the airline’s principal obligation to transport passengers was discharged since performance was rendered impracticable by the travel ban. In articulating the impracticability standard, the California court repeated nearly word for word the formulation found in the Restatement (Second) of Contracts. 17
Supervening destruction of the contract’s object, such as the loss of a specific building or the failure of a crop from a particular farm. 18
In these three instances of impossibility, it is apparent that the outcome rests upon an interplay between the contractual terms and an external event. The terms of the contract agreement (expressed or implied) are then determinative of whether the defense of “impossibility” had arisen. The more the contract goes into details about the modalities of performance (the time, manner, place, object, and subject) the more easily a relevant supervening event could destroy an essential element of the performance. For example, in the celebrated 1863 case of Taylor v. Caldwell, the contract specified that defendant would lease to plaintiff a particular music hall “The Surrey Gardens” for a series of concerts. The hall, however, was accidentally destroyed by fire without the lessor’s fault. The court recognized that the lessor’s performance was materially impossible. 19 In those circumstances, it would not matter that another music hall might have been available as a substitute or that defendant might have been able to procure it. The defendant was definitively excused, because the parties literally contracted for the use of a no-longer-existing particular thing, not a generic thing, and the common law judges would refuse the temptation to rewrite the contract for the parties.
The interplay between contractual terms and later events is similar when the contract calls for a certain artist to paint a portrait or an eminent architect to design a building and that person subsequently dies or becomes incapacitated. The death or incapacity of the obligor makes the performance “as agreed” literally impossible. 20 Here, again, first the contract itself narrows the performance into certain essential elements, one of which then disappeared due to an event outside of the parties’ control.
The Suez Canal shipping cases were decided differently and afford a clear counterexample where the details of the agreed performance were not closely delineated. The unexpected closure of the Suez Canal (due to military operations against the Egyptian government) did not make execution of the shipping contracts impossible or impracticable. The contracts did not stipulate that the cargoes in question had to be shipped to destination via Suez or via any particular route, though the Suez was the usual and normal route. 21 There was an obvious alternative route to destination (though lengthier and more costly) around the Cape of Good Hope. It is clear, however, that had the contracts specifically called for shipment through the Suez Canal, then closure of the Canal would have made performance literally impossible, for that route would have been a constituent element of the performance intended by the parties. 22
It is clear under modern law, however, that literal impossibility is no longer required and is no longer the conventional reasoning. The three categories discussed above, along with other instances in general, would probably be analyzed and fitted to the modern rules of impracticality and frustration. Here the “basic assumptions” of the parties at the time of entering the contract are looked to as the means of allocating or shifting the risk of a supervening event between them. Thus, in terms of the traditional categories, it may be said that parties generally assume that a person necessary to performance will not die or become incapacitated, or that government will not intervene to prohibit the performance, or that the thing necessary to performance will remain in existence. 23 We now turn to consideration of modern doctrines in some detail.
As previously noted, performance was excused under an older approach only when it was literally impossible. Under the modern view, however, impracticality is sufficient. The growth of this somewhat eased and more pliable standard began with the Restatement (First) of Contracts in 1932 under Samuel Williston, which equated extreme impracticality with impossibility. 24 Earlier cases, like Mineral Park Land v. Howard, prepared the way for this development by understanding the notion of impossibility in a pragmatic or commercial sense. In that decision the California Supreme Court, quoting with approval a statement from the treatise Beach on Contracts, declared: “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.” 25
This standard received general approval in the United States when it was officially adopted by the UCC drafted by Karl Llewellyn in 1952. Under the heading “Excuse by Failure of Presupposed Conditions,” it articulated the impracticability standard as follows:
Except so far as a seller may have assumed a greater obligation . . . :
Delay in delivery or non-delivery in whole or in part by a seller . . . is not a breach of his duty under a contract for sale if 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 . . . . 26
According to the official comments, this provision excuses a seller from timely delivery where his performance has become commercially impracticable because of “unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting.” 27 It cautions that increased cost alone does not excuse performance. A rise in prices or the collapse of a given market are no justification “for that is exactly the type of business risk which business contracts made at fixed prices are intended to cover.” 28
Section 2-615 UCC, though applicable only to the sale of goods, was enacted in every state of the union, save Louisiana. It has had substantial influence beyond the law of sales, however, as seen by the adoption of the same concept, nearly thirty years later, in 1981, by the Restatement (Second) of Contracts under the direction of E. Allan Farnsworth. The Restatement provision basically mirrored the language of the UCC provision and extended the reach of impracticability to all kinds of contracts:
Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. 29
The reasoning in the UCC and Restatement provisions is far removed from the nineteenth-century reasoning of Taylor v. Caldwell, which excused performance by reliance upon a fictional “implied term” in the contract or within the parties’ “contemplation.” As Judge Skelly Wright put it, “[t]he doctrine of impossibility of performance has gradually been freed from the earlier “fictional and unrealistic strictures of such tests . . . .” 30 The emphasis now falls upon probing the psychological or thought process of the contracting parties: Did they basically assume the non-occurrence of the supervening event? The analysis of impracticability thus divides into four basic questions: Did a supervening event make performance “impractical”? Was the nonoccurrence of that event a “basic assumption” of the parties’ intent? Was there fault on either party’s side? Did the party seeking relief assume a greater obligation than the law imposes?
A parallel defense called frustration of purpose was recognized in Restatement (Second) of Contracts. The UCC did not contain a provision excusing performance for frustration of purpose, but this complementary defense, with its origins in the Coronation Cases (discussed below), was incorporated in the Restatement:
Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary. 31
Under this provision, the analysis of frustration also divides into four questions: Did a supervening event make performance “frustrated”? Was the nonoccurrence of that event a “basic assumption” of the parties’ intent? Was there fault on either party’s side? Did the party seeking relief assume a greater obligation than the law imposes?
Frustration of purpose occurs when unexpected circumstances destroy the obligor’s principal purpose for entering the contract, as famously illustrated by the coronation case Krell v. Henry. 32 The cancellation of the King Edward VII’s coronation in 1902 destroyed the defendant’s purpose in leasing an apartment along the processional route to witness the grand event. Defendant’s ability to pay the rent remained possible, but the value to him of renting this “room with a view” had evaporated. Here, the defense excused the lessee’s performance (payment of rent) when unexpected circumstances caused the creditor’s counter-performance to have no value for him. It had nothing to do with the debtor’s inability to perform.
It should be noted that frustration of purpose complements the impracticality defense which concerns circumstances that make the debtor’s own performance excessively burdensome. As Farnsworth succinctly describes this difference, “[i]n general the doctrine of impracticability of performance operates to the advantage of parties that are bound to furnish goods, land, services, or some similar performance, while the doctrine of frustration of purpose operates to the advantage of parties that are to pay money in return for those performances.” 33
When these defenses are recognized in a proper case, the effect is to discharge both debtor and creditor from further performance. 34 Discharge has no retroactive application but excuses performance prospectively, e. from the time the supervening event occurred. If the excused performance was material, the creditor may suspend his own performance, or eventually, if the non-performance is permanent, he may terminate the contract. 35 Where the creditor rendered part performance before the occurrence of the supervening event, his relief may be for restitution of that performance to the extent that it benefited the excused party.
Where the impracticability of performance already existed at the time the contract was concluded, due to a fact of which the obligor had no reason to know, there (as in the law of mistake) the obligor’s duty to perform never arises. 36 The effect of existing impracticability is to prevent a duty from arising in the first place rather than, as in the case of supervening impracticality, to discharge a duty that has already arisen. 37
According to the Restatement (Second) of Contracts the term “impracticality” connotes “extreme or unreasonable difficulty, expense, injury or loss to one of the parties.” 38 It is of course no easy matter, however, to discern at what point increased difficulty reaches the threshold of extreme onerousness. It is clearly a matter of degree, with a wide scope for judicial discretion. The Restatement merely gives guidance by discussing instances that may be within the rule:
A severe shortage of raw materials or of supplies due to war, embargo, local crop failure, unforeseen shutdown of major sources of supply . . . which either causes a marked increase in cost or prevents performance altogether may bring the case within the rule stated in this Section. Performance may also be impracticable because it will involve a risk of injury to person or to property, of one of the parties or of others, that is disproportionate to the ends to be attained by performance. 39
This is followed, however, by a familiar caveat about increased cost:
A mere change in the degree of difficulty or expense due to such causes as increased wages, prices of raw materials, or costs of construction, unless well beyond the normal range, does not amount to impracticability since it is this sort of risk that a fixed-price contract is intended to cover. 40
The jurisprudence seems to confirm this warning about mere increased cost. As Calamari and Perillo have pointed out, increases in costs of 33%, 100%, and even 300% have been held to be insufficient. By contrast, the Mineral Park case, discussed above, excused the obligor because of an exceptional ten to twelve-fold increase in cost. 41 Generally speaking, there are relatively few cases of impracticality based solely on increased costs. 42 This was apparent in the refusal, on the part of common law courts on both sides of the Atlantic, to excuse performance in the Suez Canal cases. The closure of the Canal in 1956 forced shipments to take the longer route around the Cape of Good Hope, an extra distance of some 3,000 miles that resulted in increased expense. Aside from the matter of expense, however, the longer route did not pose a danger to the crew or threaten damage to the cargo. In the British case, the longer route nearly doubled shipping costs, 43 while in the American case it added about $44,000 to the contract price. 44 Both tribunals refused to excuse performance. As Viscount Simonds stated in the House of Lords, “the seller maybe put to greater cost; his profit may be reduced or even disappear. But it hardly needs reasserting that an increase of expense is not a ground of frustration . . . .” 45 Judge Skelly Wright was slightly less categorical: “While it may be an overstatement to say that increased cost and difficulty of performance never constitute impracticability, to justify relief there must be more of a variation between expected cost and the cost of performing by an available alternative than is present in this case . . . where impracticability is urged on the basis of added expense alone.” 46
The notion of “temporary” impracticability adds an important corollary to the defense, since a supervening event frequently has a limited duration or transitory effect. Rather than leading to a permanent excuse and the permanent discharge of the obligor, temporary impracticability usually has the effect of merely suspending the obligor’s duty to perform until the unexpected circumstance ceases to exist or for a reasonable period thereafter. 47 In one case, a tire manufacturer alleged that defendant (an equipment lessor) failed to deliver certain “tire presses” and therefore was in breach of the lease agreement. 48 The court ruled that delivery was excused, at least temporarily, because a third party had converted the presses to its own use and was wrongfully refusing to relinquish possession to the owner-lessor. The third party’s conduct was considered unforeseeable: there was no history of tortious or opportunistic conduct on his part in past relations. The court considered this interference to be temporary and did not discharge the lessor’s duty entirely. Once the lessor obtained possession of the presses, its duty to deliver would then resume.
Similarly, the California Court of Appeals ruled that delivery of a house to the purchaser was only temporarily frustrated by the adverse possession of holdover tenants. 49 The holdover tenancy did not fully excuse the seller’s duty to deliver possession. The duty was merely suspended until the holdover ceased. In another example, a music festival needed to be rescheduled due to the outbreak of Covid 19. The county authorities had banned mass gatherings of over 200 people, causing the concerts to be postponed. Ticket purchasers sought to receive refunds from the festival organizers. The court viewed the situation as one of temporary impossibility. It did not fully discharge defendant’s performance, absent a showing the performance would become materially more burdensome due to the delay. 50
Parties invoking these common law defenses must demonstrate they made diligent and reasonable efforts to avoid the consequences of unexpected circumstances, for example, by arranging “cover” or seeking alternative “sourcing” from available providers. According to the Restatement “a party is expected to use reasonable efforts to surmount obstacles to performance, and a performance is impracticable only if it is so in spite of such efforts.” 51 For instance an oil well driller claimed that performance had become impossible because a labor strike in the steel industry prevented him from obtaining the required well casing from his supplier. 52 The evidence showed, however, that the casings were available on the market, though at much additional expense. Interestingly, the mineral lease contained a force majeure clause in which strikes and lockouts were among the enumerated excusing events, but the court held that defendant was still obliged to make efforts to obtain the well casings from other available sources. The court stated, “[e]ven in the case of a force majeure provision in a contract, mere increase in expense does not excuse the performance unless there exists ‘extreme and unreasonable difficulty, expense, injury, or loss involved.’” 53
The notion of moral impossibility appears to be unknown in the United States. It is not a term of art, although it must be said there are decisions in which certainly moral considerations must have played a part in the court’s decision to excuse performance. There have been instances where “one’s fear of exposing other persons or property to danger might excuse one from performing.” 54 For instance, in The Kronprinzessin Cecilie (1917), a ship owner during wartime was discharged from his duty to sail into submarine-infested waters to deliver a cargo. The court reasoned that the shipmaster was entitled to take “reasonable precautions” to avoid the loss of his ship and cargo, and it was reasonable for him to turn back. 55 In another case, an employee was discharged from a duty to work in an area where an epidemic of a contagious disease was in progress. 56
These decisions would no doubt be relevant in instances where the pandemic is pleaded as an excuse, as where parties may refuse to perform employment contracts out of health concerns or may refuse to travel into heavily infected regions for fear of contracting or spreading the virus. Nevertheless, as previously noted, no mention of “moral” impossibility or impracticability has been found in doctrine or cases.
It may seem surprising at first glance that neither the UCC nor the Restatement make explicit reference to the foreseeability or unforeseeability of the supervening event as an operative part of the impracticability or frustration analysis. The concept is not found in the blackletter of the provisions, quoted above, nor does it appear in the four basic questions previously mentioned. 57 Nevertheless the omission in my judgment does not signal a fundamental change in the common law. As the comments make clear, foreseeability remains an important factor in determining the parties’ basic assumptions, 58 and unsurprisingly courts tend to follow the comments assiduously. Comment 1 to section 2-615 UCC restores foreseeability immediately to center stage by declaring: “This section [§ 2-615] excuses a seller from timely delivery of goods contracted for, where his performance has become commercially impracticable because of unforeseen supervening circumstances not within the contemplation of the parties at the time of contracting.” 59 Based on this statement the omission in the black letter was not intended to eliminate the foreseeability factor but only to subsume it within a broader question, i.e., whether the non-occurrence of an event was a basic assumption of the parties. The Restatement comments make clear that foreseeability has been folded into the “basic assumption” question, although cautioning that what the parties might or should have foreseen should not be taken as an automatic or infallible test of the parties’ assumption of a risk. 60 Farnsworth explains why foreseeability should not be taken as talismanic:
A party may fail to provide for a risk, even though it is foreseeable, because the party does not consider it to be significant enough to make it a subject of bargaining or because the party regards its bargaining position as too weak to risk broaching the subject . . . . Although the foreseeability of the event will often be a factor that suggests that a promisor assumed the risk of its occurrence, it should not be conclusive on that issue. 61
Concurring on this point, Melvin Eisenberg says that foreseeability “should only be an index not the test.” The test should be what the parties tacitly assumed, and “reasonable foreseeability should play a very important but usually not decisive role in that determination.” 62
To illustrate how a reasonably foreseeable risk may sometimes be irrelevant to the thought process of contracting parties, we might consider the case of Washington State Hop Producers v. Goschie Farms. 63 This was a situation in which a contract was frustrated though the frustrating event (government abolition of a marketing system) was perhaps reasonably foreseeable by the parties or, at least, it was not unforeseeable. According to the court, the basic purpose of the contract—the purchase of a “hop allotment base”—was frustrated when the government terminated the allotment system, since a hop base existed only by virtue of that system. The need to own or control hop base to sell hops was an assumption central to the subject matter and without that assumption no contract would have been made. The court ruled that the foreseeability of the government’s intervention was beside the point in these circumstances, stating: “The Restatement (Second) of Contracts repeatedly refers to foreseeability as only a factor in determining whether the non-occurrence of the frustrating event was an assumption basic to the contract.” 64
It is submitted, however, that cases such as Washington State Hop Producers are relatively rare. In the usual case reasonable foreseeability will be used to determine whether there has been an assumption of the risk. A Nevada case offers a simple example. A lessee entered into a lease with the intention of constructing a four to five million dollar building on the site. The lessee was well aware that in order to obtain financing for the project from his bank governmental approval would be necessary. As it turned out, a federal administrator ultimately denied the bank permission to make the loan. No provision in the lease contract, however, excused the lessee’s obligations in case the loan was not approved. The court held that the lessee took the risk of non-approval and rejected his claim of impracticability. 65 As the court stated, “[o]ne who contracts to render a performance for which government approval is required assumes the duty of obtaining such approval and the risk of its refusal is on him.” 66
A California case provides another example. 67 The defendant asserted, as a defense to the claim for breach of an agreement to distribute denim apparel, that there had been a downturn in the Japanese denim market. The California court rejected the defense on the ground that defendant was already aware of the existing decline in the Japanese market when it signed the agreement some years earlier and such knowledge defeated any possible defense. 68
The reasonable foresight of “sophisticated commercial parties” may be regarded as far-reaching. 69 In a New York case, the lessee of retail space attempted to assert the “impossibility” of performing his obligation to pay the rent, citing the effects of the severe financial crisis that engulfed the United States in 2008. An expert witness testified that the crisis was an “economic tsunami” that was “unforeseeable as to its occurrence or as to the extent and length.” The lower court, in an opinion upheld on appeal to the Appellate Division, refused to recognize that the economic downturn amounted to impossibility. It quoted precedents which stated, “once a party to a contract has made a promise, that party must perform or respond in damages for its failure, even when unforeseen circumstances make performance burdensome.” The court also noted that these “sophisticated commercial parties” could have anticipated that future events might result in financial disadvantage, even if the precise cause or extent was not foreseen at the time the contract was executed. It also ruled that the force majeure clause in the lease did not apply to these circumstances since it did not specifically refer to a “financial crisis” as an excusing event. To the contrary, the court took note of language which excluded a defense based on “Landlord or Tenant’s financial hardship.” 70
Melvin Eisenberg points out that reasonable foreseeability, taken in the sense of some future occurrence being likely (or at least not unlikely), may affect a whole range of basic decisions. If a given risk is foreseen, it can affect the initial decision to enter the contract, or it may at least suggest the necessity of a force majeure clause with particular language and coverage. Or a foreseen risk may affect the calculation of the price. If a future shortage of goods seems likely, the seller may be inclined to raise his price. Furthermore, if a particular risk is already very widely perceived (as is, for example, the risk that the pandemic may continue into an indefinite future) that risk may have already been built into the market price of goods and services in the form of a “risk premium.” When that is the case, Eisenberg argues, “it should be no defense to an individual seller who has received the risk premium that was impounded into her price, that she did not personally perceive that the event was foreshadowed.” 71 Another point is that the duration of the contract (the “contract time”) affects the arc and scope of what may be reasonably foreseen: “The longer the contract time, the more likely that a variety of circumstances that bear on the contract might occur during that time.” 72 The point is that if the duration of the performance is twenty years, as opposed to one week or one day, it becomes more likely that at some point along the way a fairly remote risk may materialize and interfere with performance.
Foreseeability, it is usually said, is not to be confused with “conceivability,” for otherwise everything becomes foreseeable. To avoid the possibility of too wide a notion, the vast majority of writers and courts use the qualified expression “reasonable foreseeability.” 73 That is not to say, however, that decisions cannot be found which appear to attribute extraordinary clairvoyance to the parties. In the case of Bende & Sons v. Crown Recreation Inc., for example, a New York court held that the derailment of a train delivering a shipment of shoes was foreseeable by the seller. 74 The train was a common carrier not operated by the seller, and the loss of the shipment caused plaintiff (a middleman) to lose a profitable resale. Refusing to excuse the seller’s failure to deliver under section 2-615 UCC, the court stated: “The foreseeability requirement does not entail contemplation of a specific contingency; rather it is sufficient that the contingency that eventually occurred could have been foreseen as a real possibility that would affect performance.” 75 The reasoning seems to stretch the foreseeability notion beyond reasonable limits. The court might have said instead, in accordance with the Restatement, that an obligor who is under a duty to deliver normally assumes the risks of his own inability, even when that inability is caused by the failure of a third party’s performance. 76
Past experience shapes our appreciation of future risks, and some events that once might have been considered “unforeseeable” have been normalized through repeated experience. For example, the increasing frequency and intensity of hurricanes in certain regions of the United States inevitably affect the judiciary’s appreciation of reasonable foreseeability. Florida courts recognize that hurricanes are essentially “acts of God,” but given that Florida experiences several each year, a ruling of “unforeseeable” is now generally reserved for those that are extreme and unprecedented. The 1941 hurricane that struck the city of Tallahassee, Florida, leaving it without power for ten hours, was deemed an act of God that excused the power company’s failure to supply electricity in that time interval. 77 But Hurricane Ivan in 2004, with sustained winds of only 84 miles per hour, was not considered of such force that it excused a barge owner’s failure to prevent his barges from breaking loose. 78
The expression force majeure inevitably conjures in our minds violent scenes of eruptions, earthquakes, floods, hurricanes, and war. But it can be seen from this Report that none of these kinds of events are actually necessary under common law to create the conditions of excused performance. The common law does not require a causal link to events of that type in order to apply the doctrines of impracticability of performance and frustration of purpose. A common cold is not particularly forceful and yet it may be sufficient to excuse an operatic performance. The death of a man by natural causes is difficult to classify as force majeure, and yet his death will excuse further performance under a personal services contract. Furthermore, it appears that it is not the degree of force that excuses the performance under these doctrines but rather the severity of the impact, however minimal the force. Of course, force majeure events may indeed be the cause of a situation of frustration or impracticability, but impracticability actually refers more to the degree of increased burden rather than to a typology of underlying causes. Moreover, there does not have to be a supervening event. One case involved the question whether a promise to drill a well was excused by the existence of a layer of hard rock below the surface. The court treated the question in terms of impracticality (performance was not excused). Here was an impracticability question but there was no event, anterior or posterior, that took place. 79 This will be true in all cases of so-called “existing impracticability” and certainly it will be true in some cases involving frustration of purpose. Frustration may occur without supervening force majeure, as seen in the seminal Coronation Cases where the mere postponement of a parade frustrated the lease of an apartment.
Neither party will be liable for any failure or delay in performing an obligation under this agreement that is due to any of the following causes, to the extent beyond its reasonable control: acts of God, accident, riots, war, terrorist act, epidemic, pandemic (including the COVID-19 pandemic), quarantine, civil commotion, breakdown of communication facilities, breakdown of web host, breakdown of internet service provider, natural catastrophes, governmental acts or omissions, changes in laws or regulations, national strikes, fire, explosion, or generalized lack of availability of raw materials or energy.
For the avoidance of doubt, Force Majeure shall not include (a) financial distress nor the inability of either party to make a profit or avoid a financial loss, (b) changes in market prices or conditions, or (c) a party’s financial inability to perform its obligations hereunder.
I would like to express my gratitude to Micaela Fonte, Scarlett Hammond, and Blaze D’Amico for their helpful research in completing this paper.
Guenter H. Treitel, Frustration and Force Majeure 1 (2d ed. 2004).
See Paradine v. Jane, 82 Eng. Rep. 897, 897 (1647). The case arose when a lessee sought to be excused from paying rent because a “German prince, by name Prince Rupert, an alien born, enemy to the King and kingdom,” ousted him from the land, so that he could not take income from it, but it did not involve impossibility because he could still have paid the rent.” Paradine v. Jane is usually regarded as authority for absolute contracts.
New York state is of course a great financial center. It may have the most rigorous version of pacta sunt servanda in the United States. The courts continue to use the expression “impossibility” rather than “impracticability” and describe the former in the narrowest terms. See Kel Kim Corp. v. Century Markets, Inc., 519 N.E. 2d 295 (N.Y. 1987) (“Note at the outset, that parties attempting to invoke impossibility of performance have an uphill battle. New York courts have been consistently hostile to the defense, allowing it to excuse performance only in the most extreme circumstances.”).
E. Allan Farnsworth, Contracts ¶ 9.6 n.4 (4th ed. 2004). For English usage, see Treitel , supra note 1; Jan M. Smits, Contract Law: A Comparative Introduction 201, 215 (2d ed. 2017).
Barry Nicholas, The French Law of Contract 201–02 (2d ed. 1992).
An example of a force majeure clause is found in Appendix 1 to this Report.
TEC Olmos, LLC v. Conocophillips Co., 555 S.W.3d 176 (Tex. App. 2018).
See Paula Bagger, The Importance of Force Majeure Clauses in the COVID-19 Era, Am. Bar Ass’n (Mar. 25, 2021), www.Americanbar.org/groups/litigation/committees/commercial-business/boilerplate-contracts/force-majeure-clauses-contracts-covid19 (pointing out that four components of a force majeure clause should be carefully drafted).
See Code Civil [C. civ.] [Civil Code] arts. 1218, 1195 (Fr.). The latter article brought into the Code, for the first time in French legislative history, the doctrine of “changed circumstances” or imprévision. It will operate in circumstances similar to force majeure to excuse performance when unforeseeable events make performance “excessively onerous,” even if it may still be possible. James Gordley has noted that “unlike Roman law, the French Civil Code does not distinguish between situations in which performance is excused by impossibility and those in which it is excused by force majeure.” James Gordley et al., An Introduction to the Comparative Study of Private Law 245 (2d ed. 2021). In French law, force majeure is synonymous with the defense of impossibility. For details, see P. Malaurie, L. Aynès & P. Stoffel-Munck, Droit des obligations ¶¶ 952–57 (10th ed. 2018); François Terré et al., Droit Civil: Les obligations ¶¶ 747–60 (12th ed. 2019).
John D. Calamari & Joseph M. Perillo, Calamari and Perillo on Contracts ¶ 13.1 (6th ed. 2009).
Farnsworth , supra note 4, ¶ 9.6.
See Restatement (Second) of Contracts § 262 ( Am. L. Inst. 1981) (death or incapacity of a person necessary for performance); id. § 263 (destruction, deterioration or failure to come into existence of a thing necessary for performance); id. § 254 (prevention by governmental regulation or order).
Civil law systems generally regard personal service contracts as intuitus personae and therefor it is unnecessary to treat the debtor’s death or disability as making performance impossible. Rather the ‘strictly’ personal nature of the performance creates an exception to the normal rules of heritability and transferability of obligations. Unless the contract provides otherwise, a performance intuitus personae cannot be assigned to another and is untransmissible at death. See La. Civil Code art. 1766; Malaurie, supra note 9, ¶ 421; Terré et al. , supra note 9, ¶¶ 1415, 1621. For a case holding the obligor’s disability amounted to force majeure, however, see Cour de Cassation [Cass.] [supreme court for judicial matters], Assemblée plénière, Apr. 14, 2006, 02-11-168 (Fr.).
See Farnon v. Cole, 66 Cal. Rptr. 673 (Cal. App. 1968).
267 Dev. LLC v. Brooklyn Babies & Toddlers LLC, 2021 NYLJ Lexis 229 (performance of a lease made impossible by executive order closing defendant’s business due to the covid pandemic).
2020 U.S. Dist. LEXIS 173854 (C.D. Cal.).
Restatement (Second) of Contracts § 261 ( Am. L. Inst. 1981) (“Where after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged.”).
Taylor v. Caldwell [1863] 3 B&S 826 (QB). Guenter Treitel writes that this case represented a turning point in which the common law moved from a doctrine of absolute contracts to the modern doctrine of discharge by supervening events. Treitel , supra note 1, at 12.
Taylor, 3 B&S at 826.
Restatement (Second) of Contracts § 264. See also Hall v. Wright, 120 Eng. Rep. 695, 696 (1859) (“Where a contract depends upon personal skill, and the act of God renders it impossible, as, for instance, in the case of a painter employed to paint a picture who is struck blind, it may be that the performance might be excused.”).
See Transatlantic Fin. Corp. v. United States, 363 F. 2d 312 (D.C. Cir. 1966); Tsakiroglou & Co. v. Noblee & Thorl G.m.b.h. [1962] AC 93 (HL).
See Restatement (Second) of Contracts § 261 (“If A agrees to sell and B to buy goods to be delivered in October at a designated port, and the port is subsequently closed by quarantine regulations during all of October, A’s duty to deliver the goods is discharged and A is not liable for breach of contract.”).
Farnsworth , supra note 4, ¶ 9.6.
Restatement (First) of Contracts § 454 ( Am. Law Inst. 1932 ).
156 P. 458 (Cal. 1916). The ruling of the court excused defendant from excavating any further gravel from plaintiff’s land to be used for the construction of a bridge, since the only gravel remaining on the land was submerged under water and could only be removed at great expense by use of a steam dredger coupled with a drying process, resulting in a cost ten or twelve times more than the usual amount. It should be noted that this case involved what is called “existing impracticability” as opposed to supervening impracticability. The rules governing the latter generally apply to existing impracticability, but with two differences: the party seeking to have performance excused for existing impracticability must show he or she had no reason to know the facts that made performance was impracticable, and the result will be a void contract rather than the discharge of a contract that had already arisen. Calamari & Perillo , supra note 10, ¶¶ 13, 11.
U.C.C. § 2-615 ( Am. L. Inst. & Unif. L. Comm’n 1952).