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 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 sec. 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).