Our earlier article explored Delaware case law interpreting force majeure provisions in the context of COVID-19. But what happens when a contract omits or contains a sparse force majeure clause? In those circumstances, common law contract principles may provide a defense to claims of contractual breach caused by the COVID-19 pandemic.
Predominant common law doctrines that may be raised as affirmative defenses in breach of contract cases are impossibility of performance, impracticability, and frustration of purpose. Although these doctrines are similar, and are often conflated, the factual circumstances under which they arise are distinct. Parties seeking to rely on these doctrines must understand their nuances and appreciate the difficulty of prevailing under these doctrines in Delaware courts. As affirmative defenses, they must be raised in an initial pleading, usually an Answer to a Complaint. Additionally, as “affirmative” defenses, the burden is on the party invoking them to satisfy the elements of each defense. The defenses of impossibility and impracticability are explained below. Commercial frustration will be covered in a future article.
The doctrine of impossibility generally applies where performance is impossible due to: changes in domestic law; the death or illness of an individual identified to personally perform an essential act under the contract; or the destruction or change in character of the object of the contract.1 Moreover, the event that creates the impossibility must be a fortuitous one, not caused by the party seeking to excuse performance.2
To succeed under an impossibility defense, a party must show:
- the occurrence of an event, the nonoccurrence of which was a basic assumption of the contract;
- continued performance under the contract is not commercially feasible; and
- the party claiming the defense did not expressly or impliedly agree to performance in spite of the event.3
This defense will not excuse performance where the promisor assumed the risk.4 Likewise, if the supervening event causing the impossibility was “reasonably foreseeable,” and should have been contracted for within the four corners of the agreement, the defense will not apply.
In the context of COVID-19, some Delaware cases note that the impossibility defense may be available where performance is prevented by governmental action.5
A party may be excused from a contractual breach by supervening impracticability under certain limited circumstances. Delaware courts have adopted the Restatement (Second) of Contracts § 261 (1981), which provides:
[w]here, 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.6
The Delaware legislature also approved the doctrine of impracticability in its adoption of the Uniform Commercial Code (UCC) under 6 Del. C. § 2-615(a). This provision applies only to the sale of goods, however; it does not apply to contracts for services.7 Thus, parties invoking the defense under services contracts must rely on Delaware common law.
Whether applicable to the sale of goods or services, the impracticability doctrine arises in circumstances under which “[p]erformance may be impracticable because of extreme and unreasonable difficulty, expense, injury, or loss to one of the parties involved.8
Parties invoking the defense must show:
- the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made;
- continued performance is not commercially practicable;
- lack of fault by the party claiming the defense, and;
- the party claiming discharge did not expressly or impliedly agree to performance in spite of the impracticability.9
Delaware courts will reject the defense if the circumstances causing the impracticability were a consequence of the party’s own actions.10
Similar to impossibility, the defense will not apply if the event precipitating the impracticability was reasonably foreseeable; and indeed, the defense is commonly defeated on those grounds.11 While it is unlikely that Delaware courts would consider the COVID-19 pandemic to be reasonably foreseeable, litigants should be wary of the defense’s other elements, such as whether they assumed the risk of any acts of god or that they “expressly or impliedly agree[d] to performance in spite of the impracticability.”12
Both impossibility and impracticability require circumstances that the parties did not contemplate at the time their contract was made, and that neither party assumed the risk of such circumstances. Performance under the contract must be rendered impossible or impracticable due to the unforeseen circumstances. In the context of COVID-19, performance under a contract may be delayed, but not rendered impossible. It is unclear whether a delay renders performance so commercially impracticable as to warrant relief in an action for breach of contract.
If you have any questions about common law doctrines of impossibility, impracticability, and frustration of purpose under Delaware law, please contact John Newcomer (firstname.lastname@example.org; 302.888.6975), David Soldo (email@example.com; 302.888.6950) or Damon Ferrara (firstname.lastname@example.org; 302.888.6865).
1 Martin v. Star Pub. Co., 126 A.2d 238, 242 (Del. Supr. 1956).
2 Id. at 242-43.
3 See Chase Manhattan Bank v. Iridium Africa Corp., 474 F. Supp. 2d 613, 620 (D. Del. 2007).
4 In re Bicoastal Corp., 600 A.2d 343, 351 (Del. 1991).
5 See Grynberg v. Burke, 1981 WL 17034, at *8 (Del. Ch. Aug. 31, 1981) (“impossibility may be caused ... by governmental act”); see Morton v. Rogers, 2018 WL 1023163, at *6 (Del. Ch. Feb. 22, 2018), adopted, 2018 WL 1211118 (Del. Ch. Mar. 7, 2018) (citing Grynberg).
6 Mountaire Farms, Inc. v. Williams, 2005 WL 1177569, at *5 (Del. Super. Apr. 25, 2005); Henlopen Hotel, Inc. v. United National Insurance Company, 2020 WL 233333, at n. 67 (Del. Super. Jan. 10, 2020).
7 6 Del. C. §§ 2-102; 2-105.
8 CRS Proppants LLC v. Preferred Resin Holding Co., LLC, 2016 WL 6094167, at *6 (Del. Super. Sept. 27, 2016) (citing Restatement (Second) of Contracts § 261 cmt. d.).
9 See Mountaire Farms, supra, at *5 (citing J & G Associates v. Ritz Camera Centers, Inc., 1989 WL 115216, at *4 (Del.Ch. Oct. 23, 1989)).
10 Id. (noting that the party invoking the defense indirectly caused the impracticability because its own employee destroyed the goods which were the subject of the contract)
11 See, e.g., CRS Proppants LLC v. Preferred Resin Holding Co., LLC, 2016 WL 6094167, at *9 (Del. Super. Sept. 27, 2016).
12 See J & G Assocs. v. Ritz Camera Centers, Inc., 1989 WL 115216, at *5 (Del. Ch. Oct. 3, 1989).