Archive for: August, 2019

Impossibility of Performance

Impossibility of performance is a defense to breach of contract or excuse of non-performance for events that occur after a contract is entered into.  Mere unexpected difficulty, expense, or hardship involved in the performance of a contract does not excuse performance.  Where the difficulty or obstacle does not make performance objectively impossible, and that the personal inability of a promisor to perform (frequently designated as subjective impossibility, being impossibility which is personal to the promisor and does not inhere in the nature of the act to be performed) does not excuse nonperformance of the contractual obligation.  84 A.L.R.2d 12, Modern status of the rules regarding impossibility of performance as defense in action for breach of contract (2005).

In Nebaco, Inc. v. Riverview Realty Co., the Nevada Supreme Court determined that one who contracts to render a performance for which government approval is required, assumed duty of obtaining such approval and risk of its refusal is on him.  87 Nev. 55, 57-58, 482 P.2d 305, 307.  Nebaco sought to set aside its obligations under a lease executed with Riverview Realty on the ground that performance became impossible because improvement contingent upon approval by a bank authority was denied.  The lease specified that Nebaco would have a period of time to obtain interim or long-term financing for the improvements.  If Nebaco failed to terminate the lease prior to the deadline or when it obtained financing the lease termination option expired.  The Court concluded that termination of the lease rested upon the inability to obtain the required permission of the banking authority, not upon failure to obtain financing.  The doctrine of impossibility becomes unavailable because the contingency which arose should have been foreseen.

Generally, the defense of impossibility of performance is available to promisor where his performance is made impossible or highly impractical by occurrence of unforeseen contingencies, but if the unforeseen contingency is one which the promisor should have foreseen, and for which he should have provided, the defense is unavailable to him.  Id. at 57.  Although, the Court did qualify that if the foreseeable consequence is provided for in the contract, its occurrence does provide an excuse for non-performance.  Id. at 57 (citing Williston on Contracts s. 1968 (1938)).  The distinction here involved the fact that the lease specified financing as a contingency and not approval by the banking authority.  Id. at 57.

Impossibility is a doctrine of contract interpretation. W.R. Grace and Co. v. Local Union 759, Intern. Union of United Rubber, Cork, Linoleum and Plastic Workers of America, 103 S.Ct. 2177 (1983).  Foreseeability of impossibility of performance is generally a relevant but not dispositive factor in determining applicability of impossibility defense.  There is no reason to look further when risk was foreseen to be more than minimally likely, goes to the central purpose of the contract, and can easily be allocated in different manner had parties chosen to do so. U.S. v. Winstar Corp., 116 S.Ct. 2432 (1996).

In the linked blog post below, Howard & Howard‘s Mike Braun explains a recent decision where a court denied an employer’s request for a preliminary injunction against the company’s former President and its IT manager who took flash drives with company information (containing the company’s vendors and suppliers list, sales data, pricing and cost information, and profit margins), then went to work for a competitor.

The Court found that the employer failed to take adequate steps to protect its supposed trade secrets and was therefore not entitled to protection under the law.  According to Braun, the case acts as “a virtual checklist of the steps a company should consider if it wants its important information to be treated as a trade secret.”

As this article suggests, if you want others to treat your information as a trade secret, you have to treat it like a trade secret, by:

  1. Using a confidentiality agreement;
  2. Clearly identify confidential information;
  3. Train your employees to treat the information as confidential;
  4. Restrict access to confidential information; and
  5. Address confidential information when employees terminate employment

When Is a Trade Secret Not a Trade Secret? When You Don’t Protect It Like One

What Constitutes a Material Breach of Contract?

In Nevada, to prevail on a claim for breach of contract action must show (1) the existence of a valid contract, (2) a breach by the defendant, and (3) damage as a result of the breach.[1]  For a breach of contract to be material, it must go to the root or essence of the agreement between the parties, or be one which touches the fundamental purpose of the contract.[2]

Stated another way, it is a breach which is so substantial or fundamental as to defeat the object or purpose of the entire transaction, or make it impossible for the other party to perform under the contract.[3]  In Nevada, material breach of contract “depends on the nature and effect of the violation in light of how the particular contract was viewed, bargained for, entered into, and performed by the parties”[4] (more…)

Is My Arbitration Confidential?

Most questions regarding the enforceability of arbitration obligations begin with the Federal Arbitration Act, 9 U.S.C. §1 et seq. (the “FAA”), which governs the enforcement of arbitration agreements.  9 U.S.C. §§ 1-2; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 398 U.S. 395, 402 (1967).  The FAA was signed into law in 1925 and governs the enforcement of arbitration agreements, but does not require that the parties or the arbitrator hold the matter in confidence.

Nevada Revised Statutes, Chapter 38 is Nevada’s version of the Uniform Arbitration Act of 2000.  While it allows an arbitrator to issue a protective order against the disclosure of confidential and trade secret information (NRS 38.233(5)), it is silent on the issue of whether the parties to an arbitration or their arbitrator must keep the fact of the arbitration or its result a secret. (more…)