Contracts in the Time of Coronavirus: A Series on Force Majeure, Impossibility, Frustration of Purpose, and other Doctrines Excusing Contractual Nonperformance.
Part II: Impossibility of Performance and Frustration of Purpose under Florida Law.
As the world braces for a prolonged battle with the coronavirus pandemic, the effects will most assuredly have wide-ranging impacts on business and contractual relationships. Business owners may be faced with labor and supply shortages, as well as government intervention, such as quarantines or emergency shelter-in-place orders, which will render non-performance of contractual duties ever the more likely. Nevertheless, in spite of the pandemic, contracts still remain valid and enforceable, and parties still face liability for breaching their contractual obligations. However, parties faced with the difficult decisions of how to fulfil contractual obligations in these unique conditions may be able to excuse their performance under several doctrines of nonperformance. In this multipart series, the commercial litigation attorneys of FIDJ explore various doctrines which may excuse performance of contractual obligations.
In part I of our series, we discussed the potential application of force majeure clauses to excuse nonperformance. To the extent a contract either does not contain a force majeure provision or the clause it does contain excludes pandemics, a party’s performance may be excused by two other related doctrines under Florida law: the doctrines of impossibility and frustration of purpose.
“[I]mpossibility of performance is a defense to nonperformance and refers to situations where the purpose for which the contract was made has become impossible to perform.” FL-Tampa, LLC v. Kelly-Hall, 135 So.3d 563, 569 (Fla. 2d DCA 2014). Generally, impossibility concerns situations where the contractual purposes, on one side, have become impossible for that party to perform. However, merely because performance has been made more difficult or expensive, it does not necessarily mean something is impossible to perform. Home Design Center—Joint Venture v. County Appliances of Naples, Inc., 563 So.2d 767, 769-770 (Fla. 2d DCA 1990).
A similar, but distinct, concept is the doctrine of “frustration of purpose,” which “refers to that condition surrounding the contracting parties where one of the parties finds that the purposes for which he bargained, and which were known to the other party, have been frustrated because of the failure of consideration or impossibility of performance by the other party.” Crown Ice Mach. Leasing Co. v. Sam Senter Farms, Inc., 174 So.2d 614, 617 (Fla. 2d DCA 1965). “‘[F]rustration of purpose’ excuses performance by a party where the value of performance regarding the subject of an agreement has been frustrated or destroyed [and] is not limited to strict ‘impossibility,’ but includes ‘impracticability’ due to unreasonable expense.” Hopfenspirger v. West, 949 So.2d 1050, 1053-1054 (Fla. 5th DCA 2006).
When applying both doctrines, courts look to whether the contingency at issue was foreseeable at the time the parties entered into the contract. If the risk was foreseeable and could have been the subject of an express contractual agreement, courts are hesitant to invoke either doctrine to excuse nonperformance. Home Design Center—Joint Venture, 563 So.2d at 769. In other words, “[u]nder the doctrine of impossibility of performance or frustration of purpose, a party is discharged from performing a contractual obligation which is impossible to perform and the party neither assumed the risk of impossibility nor could have acted to prevent the event rendering the performance impossible.” Marathom Sunsets, Inc. v. Coldiron, 189 So.3d 235, 236 (Fla. 3d DCA 2016). “If the risk of the event that has supervened to cause the alleged frustration was foreseeable there should have been provision for it in the contract, and the absence of such a provision gives rise to the inference that the risk was assumed.” American Aviation, Inc. v. Aero-Flight Service, Inc., 712 So.2d 809, 810 (Fla. 4th DCA 1998).
Thus, nonperformance will not be excused where the party seeking to raise the defense had knowledge of facts, or such facts were available to him, which make performance impossible prior to entering into the contract. Similarly, reasonably foreseeable difficulties which could have been foreseen at the time of the creation of the contract will not excuse nonperformance. Additionally, where the party seeking to raise the defense could have acted to prevent the event rendering performance impossible, a party will face difficulty in successfully asserting either doctrine.
As the coronavirus pandemic lingers, the possibility of nonperformance will continue to rise. Fuerst Ittleman David & Joseph was founded with a focus on serving the legal needs of domestic and international businesses. Indeed, our clients range from start-ups and small businesses all the way up to Fortune 500 companies. The commercial litigation practice group of Fuerst Ittleman David & Joseph has decades of experience litigating a wide array of business disputes in various forums at both the state and federal level as well as before both domestic and international arbitration panels. In addition, the corporate transactional team of FIDJ can assist your company with a full range of corporate legal services which can take you (and your company) from the initiation of your business plan through to the daily operation of your now-thriving company. For more information contact us at 305-350-5690 or contact@fidjlaw.com.