Other possible defenses to performance of an agreement are the doctrines “impossibility” or impracticability.” Here a party’s non-performance will not generally be excused if the event preventing performance was expected or was a foreseeable risk at the time the parties entered into the agreement. And even if the event was unforeseeable, courts must still determine whether the non-occurrence of the event was a basic assumption on which the contract was made. Mere changes in market conditions or the inability financially to perform generally do not constitute unforeseen events.
Many courts construe these doctrines very narrowly and apply them only when it is objectively impossible, such as the destruction or deterioration of something necessary for performance or the prevention of performance by governmental regulation. Arguably government intervention may give rise to impossibility or impracticability of performance given the current governmental action surrounding the COVID-19 pandemic. Some courts excuse performance only where it is truly impossible, rather than merely impracticable, while others, including California, may excuse performance where it is impracticable, such that it would require excessive or unreasonable expense.
Finally, where a party intends to rely on the doctrines of impossibility and impracticality as a defense to performance, they should be prepared to establish that they made reasonable efforts to overcome whatever was preventing them from performing. Government action or regulation does not necessarily excuse performance if a party does not exhaust all reasonable and available resources to overcome or find alternatives to the government action. Once again given the serious, unprecedented action in recent history taken by the government in reaction to the COVID-19 pandemic, it may be possible to invoke these doctrines to defend against a claim of non-performance.
This is not a one size fits all. It will ultimately require counsel to analyze the factual circumstances of each agreement and the courts to consider the effects of COVID-19 on our economy and all businesses, including the governmental action taken in response to determine how to apply the doctrines of impossibility and impracticality, if at all, to each situation.
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