The Restatement 2d of Contracts finished in 1981, added concepts of temporary and partial impracticability and also restitution or reliance damages to ameliorate loss. While traditional application of such doctrines would lead to a finding that the contract automatically terminates, other cases state that if the frustration or impracticability is only temporary, then so is the hold on obligations (i.e. paying rent on office space when Santa Clara County ordinance forbids non-essential office use). This will obviously be only temporary.
Thus, the Restatement 2d Contracts Section 269 operates to temporarily suspend a party’s obligation to perform during the period of impracticality or frustration, but typically does not discharge the obligation altogether. In other words, when the circumstances giving rise to the impracticality or frustration cease to exist, then the parties will be required to perform.
It is conceivable that commercial and retail lessees might point to Section 269 as support for the position that they are excused altogether from rental obligations during the period when they are unable to access their premises or operate their business due to COVID-19 (in addition to any other lease-based rights, such as access or co-tenancy, that may be available).
Restatement 2d Contracts 269:
Temporary Impracticability or Frustration
Impracticability of performance or frustration of purpose that is only temporary suspends the obligor's duty to perform while the impracticability or frustration exists but does not discharge his duty or prevent it from arising unless his performance after the cessation of the impracticability or frustration would be materially more burdensome than had there been no impracticability or frustration.
Restatement 2d Contracts 270:
Where only part of an obligor's performance is impracticable, his duty to render the remaining part is unaffected if
(a) it is still practicable for him to render performance that is substantial, taking account of any reasonable substitute performance that he is under a duty to render; or
(b) the obligee, within a reasonable time, agrees to render any remaining performance in full and to allow the obligor to retain any performance that has already been rendered.
Restatement 2d Contracts 272:
Relief Including Restitution
- In any case governed by the rules stated in this Chapter, either party may have a claim for relief including restitution under the rules stated in Sections 240 and 377.
- In any case governed by the rules stated in this Chapter, if those rules together with the rules stated in Chapter 16 will not avoid injustice, the court may grant relief on such terms as justice requires including protection of the parties' reliance interests.
In Bush v. ProTravel Int’l, Inc., 746 N.Y.S.2d 790 (N.Y. Civ. Ct. 2002), the court invoked Section 269 to conclude that the plaintiff’s requirement to cancel a travel reservation within the contractually-required period was temporarily suspended because “New York City was in the state of virtual lockdown” following the 9/11 terrorist attacks. The court stated that “where a supervening act creates a temporary impossibility, particularly of brief duration, the impossibility may be viewed as merely excusing performance until it subsequently becomes possible to perform rather than excusing performance altogether.”
In Lohman v. Ephraim, No. B207755, 2010 WL 6901 (Cal. Ct. App. Dec. 30, 2009)(unpublished), the court rejected the defendant’s argument that an agreement to purchase real property was unenforceable at the time it was signed because holdover tenants frustrated the delivery of the property, rendering the owner’s performance impossible. The court reasoned that the holdover tenancy—a temporary condition—did not fully excuse performance: “When the obstacle to performance is only temporary, the duty to perform is not discharged but merely suspended until cessation of the impracticability. Temporary impracticability discharges the duty to perform only where performance after cessation of the impracticability "would be materially more burdensome than had there been no impracticability . . ." (Rest. 2d Contracts, § 269.)”
In Maudlin v. Pac. Decision Scis., 40 Cal. Rptr. 3d 724 (Cal. Ct. App. 2006), the court emphasized that a deficiency in retained earnings only made a company’s ability to remit payment under a deferred compensation agreement with the plaintiff “temporarily impossible,” so that the company’s obligation to pay would not be discharged but “merely suspended —unless the delayed performance becomes materially more burdensome or the temporary impossibility becomes permanent.” The Court noted that the California law on temporary impossibility mirrors the Restatement 2d Contracts section 269.
In G.W. Andersen Constr. v. Mars Sales, 210 Cal. Rptr. 409 (Cal. Ct. App. 1985), the court interpreted Section 269 as it applied to both parties. The plaintiff-contractor and defendant-owner entered into a contract for the construction of a building. After the plans had been drafted but before the construction contract was signed or any payment rendered, the city in which the building was to be constructed imposed a construction moratorium; the parties were not aware of the moratorium when they subsequently signed the contract. The court concluded that the delay in construction of the project did not, by itself, discharge the owner’s obligation to pay the deposit, as the delay was insubstantial to the nature of that obligation. For similar reasons, the court held that the mere fact that the delay created a risk of increased costs owing to price changes in the construction industry did not excuse performance entirely, as any such risk was too speculative at that time. The court noted, however, that the owner was temporarily excused from paying the deposit while the impossibility existed.
In 4900 Patrick Henry Drive Assocs. v. Keith Roofing., No. H032721, 2009 WL 1508515 (Cal. Ct. App. May 29, 2009)(unpublished), an owner hired a contractor to repair and replace a roof. When the contractor discovered the presence of rotting beams, it suspended its work while the owner hired another contractor to repair the rotting beams. During that time, a rain storm caused a large amount of water to enter the premises. The owner tried to recover damages from the contractor, alleging that it failed to adequately cover openings of the roof to safeguard the property’s interior. The court found in favor of the contractor, observing in part that its performance was suspended because of the repair of the rotting beams. The court cited Section 269 and opined that the discovery of the rotting beams “made it temporarily impossible” for the contractor to complete its roofing work and, accordingly, the contractor could not be held liable for breach of contract regarding the water damage.
When the circumstances giving rise to the impracticality or frustration cease to exist, then Section 269 affords a party a reasonable time to resume performance. In Glen Hollow P’Ship v. Wal-Mart Stores, 139 F.3d 901 (7th Cir. 1998), Wal-Mart entered into a contract with the plaintiff-contractor for the construction of a shopping center that Wal-Mart would then lease. Local residents filed a lawsuit challenging the city’s commercial zoning of the property. More than six months after the end of that lawsuit, the contractor had still not begun construction, and Wal- Mart terminated the lease. The contractor filed its own lawsuit for breach-of contract and prevailed in the trial court. On appeal, the Seventh Circuit recognized Section 269’s application given the temporary impossibility in construction due to the rezoning dispute, and highlighted that “[o]nce the governmental regulations no longer delayed performance, [contractor] would have a reasonable extension of time to perform.” The court ultimately held, however, that the contractor’s delay in beginning construction even six months after the rezoning litigation had concluded was not proximately caused by the rezoning dispute, but was actually caused by the contractor’s own inability to finance the project.
Culp v. Tri-City Tractor, Inc., 736 P.2d 1348 (Idaho Ct. App. 1987) (“Temporary impossibility [under Section 269] merely suspends the duty of performance until the impossibility ceases.”).
A condition temporarily affecting an obligor’s ability to perform need not make the performance “literally impossible;” rather, the mere presence of circumstances that frustrate the purpose of the act are sufficient to trigger application of Section 269. See Nash v. Bd. of Educ., Union Free Sch. Dist. No. 13, 345 N.E.2d 575 (N.Y. 1976) (giving of the required notice was meaningless during the temporary period of impracticality, so defendant was excused from doing so, but was then “obliged to give notice at the earliest possible opportunity” once the circumstance giving rise to the impracticality had ended).
Schaefer Lincoln Mercury v. Jump, No. 0005-05-86, 1987 WL 642758 (Del. Ct. C.P. June 8, 1987)(unpublished) In Schaefer, the vehicle lessee was obligated to make monthly lease payments. Approximately nine months into the four-year lease term, the vehicle sustained irreparable damage, not due to the lessee’s fault, and was unusable during the three month period that it was in the repair shop. When the lessor attempted to provide a substitute vehicle, the lessee rejected it and attempted to terminate the lease due to the impossibility of performance by the lessor. The court invoked Section 269, holding that the lessee could not terminate the lease outright because the period of frustration was only temporary. But, the court found that the lessee was excused “from making rental payments during the period of time that the purpose of the contract was frustrated” and that the obligation to do so “revives once performance subsequently becomes possible.”
As stated in Section 269, a party’s duty of performance is discharged when the period of impracticability or frustration ends and full performance becomes overly burdensome. For example, in Commonwealth Edison v. Allied-Gen. Nuclear Servs., 731 F. Supp. 850 (N.D. Ill. 1990), the parties entered into an agreement whereby the defendant would reprocess and deliver spent fuel discharged by Commonwealth Edison. The re-processer was required to obtain an operating license to engage in this activity. Soon after entering into the contract, an indefinite moratorium was placed on spent-fuel reprocessing. When the moratorium was lifted years later, however, the re- processing industry was commercially unviable and effectively nonexistent. Citing Section 269, the court found that the re processor was discharged from its contractual obligations, as performance had become “materially more burdensome.”