The sky is falling (or is it?): international contracts and the Y2K problem.

• Author: Baker, Mark B.

1. INTRODUCTION

   One day Henny Penny was eating corn in the farmyard when ... whack! ... an acorn fell on her head. "Oh, my," said Henny Penny. "The sky is falling! The Sky is falling. I must go and tell the King." So she went along and she went and she went along until she met Cocky Locky. "Hello, Henny Penny," said Cocky Locky. "Where are you going?" "The sky is falling and I must go and tell the King," said Henny Penny. "Oh! May I go with you?" asked Cocky . "Certamly!" said Henny Penny. So they went along and they went along and they went along until they met Ducky Lucky. "Hello, Henny Penny and Cocky Locky," said Ducky Lucky. "Where are you going?" "The sky is falling and we must go and tell the King," said Henny Penny and Cocky Locky. "Oh! May I go with you?" asked Ducky Lucky. "Certainly!" said Henny Penny and Cocky Locky. So they went along and they went along and they went along until they met Goosey Loosey. "Hello, Henny Penny, Cocky Locky and Ducky Lucky," said Goosey Loosey. "Where are you going?" "The sky is falling and we must go and tell the King," said Henny Penny, Cocky Locky and Ducky Lucky. "Oh! May I go with you?" asked Goosey Loosey. "Certainly!" said Henny Penny, Cocky Locky and Ducky Lucky. So they went along and they went along and they went along until they met Turkey Lurkey. "Hello, Henny Penny, Cocky Locky, Ducky Lucky and Goosey Loosey," said Turkey Lurkey. "Where are you going?" "The sky is failing and we must go and tell the King," said Henny Penny, Cocky Locky, Ducky Lucky and Goosey Loosey. "Oh! May I go with you?" asked Turkey Lurkey. "Certainly!" said Henny Penny, Cocky Locky, Ducky Lucky and Goosey Loosey. So they went along and they went along and they went along until they met Foxy Loxy. "Greetings, Henny Penny, Cocky Locky, Ducky Lucky, Goosey Loosey and Turkey Lurkey," said Foxy Loxy. "where are you going?" "The sky is falling and we must go and tell the King." said Henny Penny, Cocky Locky, Duckey Lucky, Goosey Loosey and Turkey Lurkey. "You'll never get there in time," said Foxy Loxy. "Come with me and I'll show you the shortcut." "Certainly" said Henny Penny, Cocky Locky, Ducky Lucky, Goosey Loosey and Turkey Lurkey. And they followed Foxy Loxy right into his cave. Henny Penny, Cocky Locky, Ducky Lucky, Goosey Loosey and Turkey Lurkey were never seen again ... and no one ever told the King the sky was falling."(1) When recently asked what actions were underway in preparation for the Year 2000 (Y2K) computer bug, a director of a leading French bank proclaimed: "The Year 2000 question is a conspiracy cooked up by the Americans and the British to create a smokescreen and distract attention away from preparations for the single European currency."(2) This Euro-envy conspiracy theory appears disingenuous: a 1998 survey projected that only one percent of French firms were going to fail to account for the Y2K Bug problem by January 1, 1999.(3) However, the same survey predicted that seventy-four percent of German firms were going to fail to meet the Y2K deadline.(4) Other surveys conclude that companies in the United States and Australia are blazing ahead of others in their battle against the Y2K Bug.(5) Yet, Canadian, British, Israeli, Swedish, French, Italian, Japanese, and German firms lag behind the United States and Australia at a rate of six to eighteen months.(6) Developing countries, suffering from pirated software and aging hardware, will most likely feel the bite of the Bug before it even arrives.(7) Indeed, multinational businesses have begun to demand advance payment for goods because the effects of Y2K in developing nations will most likely be severe.(8) Such disparities in our global marketplace will force international players to address not only their own Y2K problems, but those of their trading partners as well. Specifically, parties to an international supply chain must acknowledge that their Y2K readiness is only as effective as the chain's weakest link.(9) That weak link could result in contractual liability, and there appears to be no lack of liability to go around.(10)

   The projected cost of globally remedying the Y2K problem ranges from $300 billion to $600 billion.(11) Add the cost of lawyers and the estimate surges to $1 trillion.(12) Like a modern version of Cinderella, when the clock strikes midnight on January 1, 2000, many will scurry to find their prince charming of legal remedies.(13) This paper addresses one such possibility vis-a-vis failures in the supply chain by examining the doctrines of impossibility and impracticability within the contexts of American and international contract law. Part II explains the origins of the Y2K Bug and possible results on January 1, 2000. Part III examines the doctrine of impracticability in the Uniform Commercial Code (U.C.C.) Section 2-615 within the context of Y2K problems.(14) Part IV considers the international treaty of the Convention on the International Sale of Goods (CISG) within the Y2K context.(15) Part V concludes that when courts address Y2K failures they should apply a negligence standard rather than the standard under traditional contract law.

2. THE Y2K MILLENNIUM BUG

   The Y2K problem presents a two-fold challenge. First, older computer systems, by and large, recognize calendar years in a two digit form.(16) For example, the computer reads "98" as 1998. When 2000 arrives, computers will assume that "00" represents the year 1900 as opposed to the year 2000.(17) Not having any work assigned on January 1, 1900, the computer will be unable to function. Alternatively, the computer will continue to function but will make significant miscalculations.(18)

   The second problem is that the Year 2000 is a "super leap year."(19) Leap years occur every four years except those years ending in "00." However, "to compensate for a minor discrepancy in time that develops over the centuries, there is a super leap year in each year that is divisible by [four hundred]."(20) Thus, the computers that survive January 1 may fail to account for February 29, resulting in a belated Millennium Bug bite identical to that expected on January 1, 2000."(21)

   The essential question is why did programmers chose the two digit form for calendar years as opposed to the four digit form? The answer is rather simple -- money. In the early days of computer programming, computer memory was a precious commodity. "[O]ne megabyte of magnetic disk storage (enough for a solid novel) in 1965 was $761, compared with seventy-five cents today [1998] and perhaps thirty-four cents in 2000."(22) When one adjusts those numbers for inflation, the comparison becomes even more dramatic. Thus, during computer programming's infancy, programmers used the two-digit form for the calendar year to save memory space.(23) The two digit year became the industry norm, and the Y2K Bug is the result.(24)

   Companies will most likely encounter troubles despite their diligent attempts to achieve Y2K compliance.(25) Consider, for example, the Y2K problem and its impact on the delivery of necessities such as electricity, water, and telephone service.(26) Texas provides a case study with respect to electricity:

   In January [1998], the Public Utility Commission of Texas surveyed the state's 176 generation and distribution companies on their Y2K readiness. Only 44 percent responded. None were yet compliant, and none had any clear idea when they would be. Among Texas electric co-ops, only 18 percent had written plans for Y2K preparations, and 24 percent said they hadn't yet begun planning. So the PUC, which has absolute regulatory control over these agencies roared back with a list of recommendations, including "continuing to monitor Y2K issues" and putting up a Web page about the problem. About 20 percent of U.S. electric power comes from nuclear plants. The number of compliant plants so far: 0. Better stock up on candles and batteries, Texans.(27) Embedded systems, mini-computers which operate machinery, are also of vital concern. Examples of embedded systems that may cause mechanical problems come 2000 are those that operate security systems, elevators, heating and air conditioning systems, and, perhaps most startling, medical equipment.(28) One "Y2K analyst in London predicts that the failure of medical equipment will lead to approximately fifteen hundred deaths in England alone."(29)

   Even if the above systems operate perfectly when the Year 2000 arrives, members of a supply chain must consider whether their suppliers and customers are prepared for the new year. Hopefully, the parties comprising the supply chain have begun dialogue with suppliers and customers in anticipation of 2000.(30) However, litigation seems inevitable.(31) The following section provides a guide to supply failures in America and considers whether such failures make delivery of goods through the supply chain commercially impracticable.

3. COMMERCIAL IMPRACTICABILITY AND UNIFORM COMMERCIAL CODE SECTION 2-615

   1. History

      The doctrine of Pacta Sunt Servanda (that a contract must be fulfilled regardless of the circumstances) traditionally controlled common law.(32) A breaching party could expect something akin to strict liability as a result. However, the legal stomach eventually soured at the idea of strict liability in every contract case. Thus, two specific circumstances excused performance of contracts: (1) death of one of the parties, or (2) a change in the legal scene making performance of the contract illegal.(33) The doctrine of impossibility, expanding circumstances wherein breach was excused, later arose to address situations where the harshness of strict liability was not appealing.(34) It included "1) destruction, deterioration or unavailability of the subject matter or the tangible means of performance;(35) 2) failure of the contemplated mode of delivery or payment;(36) 3) supervening prohibition or prevention by law; 4) failure of the intangible means of performance; and 5) death or...