6.8 Excuse for Nonperformance: Impossibility and Frustration

• Library: Contract Law in Virginia (Virginia CLE) (2019 Ed.)

6.8 EXCUSE FOR NONPERFORMANCE: IMPOSSIBILITY AND FRUSTRATION

6.801 Overview. Virginia law recognizes that a breach of contract may be excused by impossibility of performance and, when the UCC applies,

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by impracticability. Whether frustration of purpose is a defense under Virginia law is less clear, but it probably is not.

6.802 Impossibility.

A. In General. Impossibility, sometimes referred to as impracticability, ¹⁰⁸ exists upon the "occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made." ¹⁰⁹ The Restatement explains: "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 to the contrary." ¹¹⁰

B. Impossibility Excuses Performance. Several situations rendering performance impossible may altogether excuse performance unless the contract provides otherwise. Where there has been a "fortuitous destruction or change in the character of something to which the contract related, or which by the terms of the contract was made a necessary means of performance, the promisor will be excused." ¹¹¹ Similarly, where impossibility is due to a change in the law or the death or illness of one who was supposed to render personal performance under the contract, the promisor may be excused. ¹¹²

However, the validity of the law rendering performance impossible does not affect the validity of the defense, provided the promisor relies upon the law in good faith. ¹¹³ The Virginia Supreme Court has explained "[t]his

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rule encourages parties to conduct their affairs under the law as it evolves, without requiring the promisor to mount expensive challenges to the validity of a law that apparently renders performance of a contractual provision impossible, or analyze the relative cost of penalties for noncompliance with a law on one hand and damages for breach of contract on the other." ¹¹⁴

C. Performance Must Not Be Merely Difficult. If performance is rendered merely difficult, burdensome, or unprofitable, a promisor is not excused. ¹¹⁵ In Virginia, breach of contract is excused only by objective impossibility of performance. ¹¹⁶

D. Limitations on Impossibility as a Defense. The defense of impossibility of performance is essentially equitable in character. ¹¹⁷ The defense is based on the "unfairness or unreasonableness of giving [the contract] the absolute force which its words clearly state." ¹¹⁸ Where impossibility is due to the promisor's own fault, the defense is not available. ¹¹⁹

"[A] party relying on the defense of impossibility of performance must establish (1) the unexpected occurrence of an intervening act, (2) [that] such occurrence was of such a character that its nonoccurrence was a basic

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assumption of the agreement of the parties, and (3) that occurrence made performance impracticable." ¹²⁰

In analyzing the first factor, a court may consider whether either party should have reasonably foreseen the event that prevented performance. ¹²¹ In considering the second factor, the frustration must be so severe that it is not fairly regarded as being within the risks assumed under the contract. ¹²² In considering the third factor, the supervening condition or event must make the promisor's performance materially more burdensome. ¹²³

E. Temporary and Partial Impossibility. Virginia law also recognizes the defenses of temporary impossibility and partial impossibility. Temporary impossibility may suspend performance. Although a supervening condition that makes performance temporarily impossible will not generally excuse performance altogether, if that condition makes the eventual performance materially more burdensome, performance may be discharged. ¹²⁴ In contrast, partial impossibility will not excuse performance if that partial performance would qualify as substantial performance. ¹²⁵

6.803 Frustration of Purpose. Frustration may occur when a party's principal purpose is substantially frustrated without his or her fault. An example of frustration that many practitioners may recall from law school days is the contract to...