Contract disputes routinely grapple with questions such as whether the risk of unforeseen contingency is the promisor’s alone to bear, or whether risk under the contract must be rebalanced so as to preserve the basic premise of the contract. These questions transcend contractual relationships impacted by coronavirus and ensuing governmental action, necessarily attracting fresh attention to the seldom-used yet venerable doctrine of temporary impossibility. This doctrine seeks to preserve the legal relationship among the parties to the fullest extent possible.
A. Impossibility and Temporary Impossibility Defined
An impossible condition is one which makes it absolutely impossible for the promisor to perform under the contract. The occurrence of the condition prevents one party from fulfilling the contract. For example, in the often-cited English case of Taylor v. Caldwell, the plaintiffs contracted with the defendants to rent a certain music hall for a series of concerts. After making the agreement, and before the first day on which a concert was to be given, the music hall was completely destroyed by fire. After a review of English common law, the court articulated the doctrine of impossibility as follows: “The principle seems to us to be that, in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance.” In applying the principle, the court excused the parties from their respective obligations under the contract on account of the music hall having ceased to exist without fault of either party.
In 1877, in the United States Supreme Court recognized this principle in American law as follows:
Impossible conditions cannot be performed; and if a person contracts to do what at the time is absolutely impossible, the contract will not bind him, because no man can be obliged to perform an impossibility; but where the contract is to do a thing which is possible in itself, the performance is not excused by the occurrence of an inevitable accident or other contingency, although it was not foreseen by the party, nor was within his control.
By 1900, after testing this principle across various state courts, the doctrine was borne into the following for the Utah Supreme Court in the frequently-cited case of McKay v. Barnett: “Where the contract is to do acts which can be performed, nothing but an act of God or of a public enemy, or the interdiction of the law as a direct and sole cause of the failure, will excuse the performance.” Thus, impossibility of performance directly and solely caused by superseding judicial, executive or administrative order became a recognized defense to a claim under a contract. A party will be excused or the contract discharged (avoided) when the law interferes with and makes subsequent performance impossible.
2. Temporary Impossibility
Temporary impossibility arises when a party to a contract is prevented for a period of time from fulfilling his contractual obligations either because the conditions necessary for performance have ceased to exist for the time being or because of supervening temporary illegality. The result is that temporary impossibility facilitates at law a “delay in performance resulting from some operative facts of impossibility.” As early as 1854, the New York Court of Appeals recognized the concept of temporary impossibility as a doctrine distinct from permanent impossibility, indicating:
It is a well settled rule, that where the law creates a duty or charge, and the party is disabled from performing it without any default in himself, and has no remedy over, then the law will excuse him; but where the party, by his own contract, creates a duty or charge upon himself, he is bound to make it good, notwithstanding any accident or delay by inevitable necessity, because he might have provided against it by contract.”
This “well settled rule” is not an exception to the general rule that contracts are to be enforced. Rather, the doctrine helps to maintain the status quo with respect to the parties’ enumerated obligations. The contract will be subject to an implied condition that the person or thing shall be in existence when the time of performance arrives. In this sense, the doctrine serves as a fictional template for contractual performance when the contract is silent as to a party’s conduct upon the occurrence of an unforeseen contingency. As the doctrine is an implied condition, the doctrine will not apply to a contract which shows that the parties contemplated the act which prevents performance, and which provides for the consequences of such an event by way of an applicable force majeure provision. The implied condition need not be invoked to explain a desired result because the contract accounts for the event which makes performance impossible.
B. Impossibility Distinguished from Impracticability and Frustration of Purpose
Over the years, the doctrines of impracticability and frustration of purpose have been confused with the doctrine of impossibility.Impracticability is similar in some respects to impossibility in that the criteria for both doctrines can be triggered by the occurrence of a condition which prevents one party from fulfilling the contract. Yet, one doctrine may apply to resolve a dispute, while another may not. Similarly, one doctrine may supply desired relief while another may not. Simply put, the doctrines are neither synonymous nor interchangeable.Professor William Page warned a century ago that, “to add together different principles or rules taken from different subjects without any attempt to work them together into a consistent whole, may result in marvelous translations of the law, but not in that progress which will today lay a foundation on which tomorrow can build with safety.” Indeed, if we were to merge these doctrines into a single rule, we will inadvertently foreclose other viable modes for facilitating equitable solutions.
To be clear, impossibility occurs after the formation of a contract when a condition makes performance of the contract literally impossible. Because the contractual obligation cannot physically be performed, impossibility is a legal question answered by objective criteria.
Impracticability, on the other hand, travels along a different analytical path. Impracticability occurs when a condition makes it difficult or unexpectedly costly for the party to perform. Unlike impossibility, it may be physically possible for the promisor to fulfill his obligations under the contract, though at extreme burden, requiring the application of subjective criteria. Impracticability will continue as a distinct measure due to technological advances to facilitate remote social interaction. For example, though a school may be closed, students may now continue their education through instruction by video. The teacher may be burdened with the cost of new computer hardware, Internet access, and finding a quiet place to prepare for and hold classes; but, it is now possible to teach in spite of restrictions against social interaction.
Frustration of purpose occurs when an unforeseen event undermines a party’s principal purpose for entering into the contract.Both parties knew of the principal purpose at the time the contract was made. While impossibility concerns the duties specified in the contract, frustration concerns the reason a party entered into the contract. Frustration is determined by examining the intent of the parties for the true object of the contract. The facts which operate to discharge the contract, expressing that object, are expressly enumerated in the contract. Contractual performance may remain possible, though it may produce a dramatically different result from what the parties anticipated when the contract was formed.In contrast, a case of impossibility will not be determined by ascertaining the intentions of the parties because the doctrine depends on events which the parties never contemplated by contract.
The legal consequence of these doctrines differ as well. Impossibility discharges the parties in lieu of breach. Temporary impossibility preserves the promisor’s duty to perform for a time during which performance becomes possible. Conversely, nonperformance by reason of impracticability or frustration constitutes a breach, though without liability. This is because where a party’s performance has been excused through impracticability or frustration, he has not fulfilled the constructive condition to the other party’s performance. He will not be liable for breach because his performance has been excused by reason of impracticability or frustration. So, if the excused party were to bring an action against the other party, the other party may defend as if the excused party had breached the contract. As Professor Murray observed in this context, “the legally excused failure to perform, however, must have the same effect as an uncured material breach to discharge the other party. If the legally excused failure to perform does not amount to an uncured material breach, the other party is not discharged.”
III. Pandemic as a Viable Foundation for the Doctrine
A. A Similar Pandemic Fosters a Similar Legal Analysis
The American experience includes deadly pandemics, epidemics and other contagious diseases. Various courts have reviewed contract disputes arising in connection with such public health crises and governmental reaction to that crisis.These cases offer a solid foundation by which pandemic-related disputes may be resolved in the future. Precedent makes for consistent and, thus, predictable interpretation among litigants and tribunals.
For example, the COVID-19 pandemic can be compared with the influenza pandemic of 1918 caused by an H1N1 virus. Both were previously unknown viral strains for which there was no existing vaccine or proven medical treatment. Both spread through respiratory droplets and killed primarily by means of pneumonia and other complications. Both caused severe economic disruption, with shutdowns of a similar nature and breadth. A juridical review of contract disputes arising in connection with the 2019 coronavirus need not be dissimilar to the methods by which courts reviewed such cases in the wake of similar public health crisis.
Examples may also be found in cases arising before the 1918 flu pandemic, when regions endured various smallpox and diphtheria epidemics and other outbreaks. The potential for mass transmission of infectious disease has continued since the 1918 flu pandemic to test these cases. For example, several major outbreaks of coronaviruses have occurred during the 21st century: the Severe Acute Respiratory Syndrome (SARS) epidemic of 2002 to 2004; the Middle East Respiratory Syndrome (MERS) outbreak of 2012 in the Arabian Peninsula; the 2015 MERS outbreak in South Korea; and now COVID-19. Both SARS and MERS were very similar, genetically, to COVID-19, with a few minor differences, such as later stage transmission and a higher mortality rate, making it easier to prevent their spread. Nevertheless, both SARS and MERS were extremely transmissible. In a three-month period, the SARS epidemic resulted in over 8,000 cases. MERS originated in Saudi Arabia in 2012, but one infected individual returning to South Korea from the Middle East in 2015 was enough to trigger a major outbreak, requiring the quarantine of over 17,000 people at its peak. South Korea’s success in combatting COVID-19 can be seen as largely due to institutions and a national psyche established during the MERS epidemic. This suggests that the severity and persistency of the underlying disease, the transmissibility of the disease, and the efficacy by which local government addresses the spread of the disease, can directly impact the obligation to perform under a contract. For instance, these factors can help explain whether a condition may be permanent or temporary. These factors can help the parties determine whether to abandon their agreement or forecast a revised timeframe for performance.
The severity of the disease is another factor which may be examined. For example, while few American citizens were infected with either SARS or MERS, the 2009 swine flu pandemic was a much different story.According to the Centers for Disease Control and Prevention (CDC), the swine pandemic involved the same virus, H1N1, which caused the 1918 influenza outbreak, albeit a less deadly strain. The CDC estimated that there were 60.8 million cases of swine flu in the United States. The mild nature of the disease meant that roughly 0.02% cases resulted in deaths, and no major shutdowns occurred in the country because of swine flu.
With COVID-19, and future disease, it becomes difficult to align all possible factors to determine a certain period for suspending performance on account of temporary impossibility. As such, the matter may not ripen for final judicial solution until the pandemic and all governmental reaction have definitively concluded.
B. Judicial Application of the Doctrine
The most often cited cases addressing a contract impacted by an epidemic-related government shutdown date back to the first quarter of the twentieth century. The facts of these cases are similar; they involve contracts between school personnel and school districts for wages not received during a period of school closure. These school-epidemic cases merit review for common themes applicable to current and analogous circumstances.
In Smith v. School District, the Kansas Supreme Court declined to excuse the school district from its contractual obligation to pay a teacher for the period during which the district closed the school on account of a diphtheria epidemic.The district alone decided to close the school. The Smith court observed that “it must be obvious that the board could not avoid liability for payment of the salary for the full term by arbitrarily closing the school a month earlier than the contract provided.”  The teacher stood ready to teach, and failed only because the district thought it for the welfare of the town that the students should not attend school. As the district’s actions were the superseding contingency, the district could not avoid liability to the teacher for his salary for the period during which the school was closed.
In Phelps v. School District, the Illinois Supreme Court similarly rejected the district’s defense that an epidemic-induced shutdown was an act of God, as “the closing of a school by the order of a school board or board of health is not the act of God, however prudent and necessary it may have been.” To the Phelps court, “if appellant had desired to be relieved of liability in the event such a contingency arose and caused the school to be closed it could have accomplished that result by so stipulating in the contract.” In this case, the district included no contractual provision otherwise delineating certain acts of God as the means by which the district could avoid liability.
Thus, the event of an epidemic, as an act of God, is distinguished from the event of governmental response, an act of man. None of the school-closure cases during this period accepts the underlying epidemic as the supervening event for a viable defense to relieve the promisee.
On the other side of the contract, for the promisor to prevail in his claim for payment, notwithstanding his temporary inability to perform through no fault of his own, he must be ready, willing and able to perform under the contract during the period which the promisee prevented the promisor from doing so. Thus, in Libby v. Douglas, the Massachusetts Supreme Judicial Court found that, when a town’s school committee closed a school on account of a diphtheria epidemic, “the suspension was not caused by the illness of the scholars, but by a precautionary order of the committee.The prevalence of the disease made the keeping open of the school unwise, but not impossible.” The court rejected the committee’s defense that the teacher did not teach “because the failure was not due to his fault, but to the action of the committee.”
In Dewey v. Union School District, when the school district closed the school on account of a smallpox epidemic, the Michigan Supreme Court noted that “it must appear that the observance of the contract by the district was caused to be impossible by an act of God. It is not enough that great difficulties were encountered, or that there existed urgent and satisfactory reasons for stopping the schools.” The contract provided that the district was to provide buildings and pupils, and that the teacher was to teach. The court found that it was the action of the district, notwithstanding the prudence of the district’s motives, that prevented the teacher from fulfilling his promise. As such, the district was not excused from its obligations under the contract.
C. Shifting and Balancing Risk
A fundamental purpose of contract law is to allocate risk that might affect performance. While the defense of impossibility has been recognized in common law, the defense has been applied narrowly so as to discharge the parties in extreme circumstances.
Temporary impossibility caused by a government-enforced shutdown is an event external to both parties, yet one of the parties will necessarily suffer loss. This makes assigning responsibility difficult, as neither party has forgone their contractual obligations, and it is not clear-cut who should suffer the loss.In deciding which party will take responsibility for the loss, the courts have been reluctant to “insert by construction for the benefit of one of the parties an exception or condition which the parties either by design or neglect have omitted from their own contract.”
Where local officials have the authority to order closures, it is the responsibility of the parties to lay forth whether one or all parties will be excused from their respective duties under the contract.This is because the parties are presumed to have intended only that which is stated in the contract. If a party did not intend to bear the risk of certain eventualities, “he should have stipulated against it.” In the wake of the 1918 flu pandemic, it was observed that “the rule from the earliest times to the present is, when a party by his own contract creates a duty or charge upon himself, he is bound to make it good, notwithstanding any accident because he might have provided against it by his contract.” Failure to specifically excuse oneself of responsibility for a period of temporary impossibility leaves the party open to a ruling against it, as impossibility will not come to his defense.
In Dewey, the court considered the burden of this risk as follows:
Plaintiff continued ready to perform, but the district refused to open its houses and allow the attendance of pupils, and it thereby prevented performance by the plaintiff.Admitting that the circumstances justified the district officers, and yet there is no rule of justice which will entitle the district to visit its own misfortune upon the plaintiff. He was not at fault. He had no agency in bringing about the state of things which rendered it eminently prudent to dismiss the schools. It was the misfortune of the district, and the district and not the plaintiff ought to bear it.
The district closed the school and, thereby, prevented the teacher from fulfilling his promise. The economic positions of the parties remained as if the teacher performed what he was engaged to perform.
The Indiana Court of Appeals similarly held, in School Town of Carthage v. Gray, that “the fact that no pupils were provided her by the school board will not deprive her of recovering her wages under the contract.” The school board never discharged the teacher for the term when it ordered the school closed.The teacher remained present, ready and willing to teach at the school. The diphtheria epidemic, upon which the board closed the school, could terminate at any time and the school reopened. Indeed, the teacher could have been liable for damages for breach had the school reopened without her present to teach. Therefore, the misfortune of school closure by the school board could not have been shifted to the teacher, absent such a risk-shifting provision in the contract.
One may argue that the law is read into every contract.By the same argument, a contract should not be subject to government action which is not lawful. For example, a school board may have no lawful authority to close a school on account of an epidemic though it may be prudent to do so.In such a case, the law will not presume that the parties knew of the contingency, that the board could close the school, when they formed their contract. Otherwise, a promisee may transfer the risk of any misfortune under the contract to the promisor.
In McKay, the board of education, upon recommendation of the local board of health, temporarily closed the schools in Salt Lake City on account of a smallpox epidemic. The Utah Supreme Court postulated as follows:
If the local board of health had possessed, at the time said contract was entered into, lawful authority to order the school closed whenever smallpox should become prevalent, and continued to possess such authority up to the time when it acted in the premises, and also had lawful authority to enforce such an order, then the defendant Board of Education in that event might, with much better show of reason, insist that the parties contracted in view of such authority, and contemplated if a smallpox epidemic should occur during the life of the contract, the Board of Education might be legally compelled against its will and without fault on its part, to close the schools, and that during the time the schools were so closed, under such authority, no salary should be paid to the plaintiff.
Here, the local board of health had no such authority at the time the contract was made. In turn, the Board of Education had no defense under the contract.
This distinction played out in the case of Gregg School Township v. Hinshaw before the Indiana Court of Appeals in 1921. The teacher contracted with the township trustee to render services as a teacher in one of the schools of the township. After she began to teach, county health officers closed the school on account of the 1918 flu pandemic. In contrast with McKay, the county health officials in Gregg School Township had express statutory authority to close the schools because of an epidemic. The court specified that:
It was in the exercise of this police power, which had been delegated to them by statute, that the health officials closed the school here involved, and such act was independent of the authority of the township trustee, and entirely beyond his control.The law delegating this authority to the board of health was in force at the time the contract involved was entered into, and it must be deemed to have been made with reference to the law. The law of the land is a part of every contract.
It was thus held that when the exigency arose, the health board, independent of the school authorities and beyond their control, in the exercise of their police power delegated to them, closed the school. For the time that the order was in force, performance was impossible and thus unenforceable. Nonperformance was excused and no damages could be recovered for the time that the order was in force.
Some twenty-seven years before Gregg School Township, the same court decided School Town of Carthage v. Gray. During the period between the two cases, Indiana enacted a statute expressly authorizing health authorities to close schools. In School Town of Carthage, the county board of health closed the school on account of a diphtheria epidemic. The teacher prevailed in Gregg School Township, like the teacher in McKay, because the superseding event had no legal effect and, as such, did not render performance impossible as a matter of law.
The Ohio Supreme Court, in Montgomery v. Board of Education, reviewed the analogous circumstance of a driver who contracted with the local board of education to convey students to and from a local school. The board closed the school on the direction of local health officials “until further notice,” requiring the plaintiff, “in order to perform his contract, to constantly and continuously maintain a team and equipment, and hold himself in readiness at any and all times upon notice to transport the pupils of the district to and from school.” In order to perform his contract, the driver was to “maintain himself in readiness at any and all times upon notice to transport the pupils of the district to and from school.” This prevented the driver from making any arrangements to the contrary. As such, though involving another vocation, Montgomery followed the doctrine utilized in Dewey, McKay, Randolph, Libby, Smith, Couch and School Town of Carthage. The Montgomery court saw no reason why the same rule should not apply to the driver.
Montgomery and Phelps are further indicative that these cases do not represent merely judicial sympathy for an underpaid class. Rather, they represent a principle of broader applicability. In each of these cases, the suspension of the enterprise was temporary; and, the promisor was required to and did remain ready to resume active and actual discharge of his prescribed duties. The benefit to the promisee of having the promisor remain ready to perform during periods of temporary impossibility justified the promisee’s liability, absent a specific provision in their contract to the contrary.
Infectious disease outbreaks remain a fact of modern life though, prior to COVID-19, the lack of daily exposure to such contagions rendered the likelihood of such an occurrence remote.Nonetheless, the possibility of COVID-19 or similar epidemic always exists. Therefore, it is not unreasonable for a contract to account for the possibility that government action in connection with an outbreak may make performance temporarily impossible. Government action inducing temporary impossibility, no matter how unforeseen the epidemic at the time of the contract, is a becoming a foreseeable contingency. Temporary impossibility should be considered when drafting a contract for performance. A contract silent in this respect will suggest that the parties intended to continue their mutual obligations status quo ante regardless of hardship.