An Illinois appeals court recently followed case precedent and narrowly construed the impossibility of performance and commercial frustration defenses in a failed real estate deal.
The parties in Ury v. DiBari, 2016 IL App (1st) 150277-U contracted for the sale and purchase of a (Chicago) Gold Coast condominium. The contract called for a $55K earnest money payment and provided that the seller’s sole remedy in the event of buyer breach was retention of the buyer’s earnest money.
The seller sued when the buyer failed to close. The buyer filed defenses saying it was impossible and commercially impractical for him to consummate the purchase due to a sudden serious illness he suffered right before the scheduled closing. The Court rejected the defenses and entered summary judgment for the seller. In doing so, the Court provides guidance on the nature and scope of the impossibility of performance and commercial frustration doctrines.
In the context of contract enforcement, parties generally must adhere to the negotiated contract terms. Subsequent events – especially ones that are foreseeable – not provided for do not invalidate a contract. The legal impossibility doctrine operates as an exception to the rule that holds parties to their contract obligations.
Legal impossibility applies where the continued existence of a particular person or thing is so necessary to the performance of the contract, it is viewed as an implied condition of the contract. Death (of the person) or destruction (of the thing) excuses the other party’s performance.
The impossibility defense is applied sparingly and requires that a party’s performance be objectively impossible; not a subjective inconvenience or hardship. Objective impossibility equates to “this can’t be done” while subjective impossibility is personal (“I cannot do this”) to the promisor. A successful impossibility defense also requires the party to show it ” tried all practical alternatives available to permit performance.” (¶¶ 21-24, 29)
The defendant’s illness failed the law’s stringent test for objective impossibility. His sickness was unique to him and therefore made closing only subjectively impossible. The court pointed out that the condominium property was not destroyed and was still capable of being sold.
Another factor the court considered in rejecting the impossibility defense was that the defendant never tried to extend the closing date or sought accommodation for his illness.
The Court also discarded the defendant’s commercial frustration defense. A party asserting commercial frustration must show that its performance under a contract is rendered meaningless due to an unforeseen change in circumstances. Specifically, the commercially frustrated party has to demonstrate (1) the frustrating event was not reasonably foreseeable, and (2) the value of the party’s performance is totally destroyed by the frustrating cause.
Like with the failed impossibility defense, the claimed frustrating event – the buyer’s sickness – was foreseeable and did not destroy the subject matter of the contract. Since the defendant’s weakened condition did not make the property worthless, there was no unforeseen frustrating event to give color to the buyer’s defense.
1/ Impossibility of performance and commercial frustration are valid defenses but only in limited circumstances;
2/ Objective impossibility (“this can’t be done”) can relieve a party from contractual performance while subjective impossibility (“I can’t do this”) will not;
3/ Commercial frustration generally requires the contract’s subject matter be destroyed or rendered financially valueless to excuse a party from performance.