We previously discussed that in Texas, like most states, performance under a contract containing a force majeure clause may be excused by acts of god or other exigent circumstances defined by the clause. However, even if the contract does not contain a force majeure clause, all is not lost if COVID–19 related events are making it impossible or impracticable to perform contractual obligations.
Texas recognizes the contractual defense of impossibility of performance when a supervening cause makes it objectively impossible to perform. “Centex Corp. v. Dalton, 840 S.W.2d 952, 954 (Tex. 1992). Some courts have held that this doctrine only applies if the supervening event could not have been reasonably anticipated by the parties. “ Where the obligation to perform is absolute, impossibility of performance occurring after the contract is made is not an excuse for nonperformance if the impossibility might have reasonably been anticipated and guarded against in the contract.” Huffines v. Swor Sand & Gravel Co., Inc., 750 S.W.2d 38, 40 (Tex. App.—Fort Worth 1988, no writ). However, the Texas Supreme Court in Centex Corp. v. Dalton, supra, at. p. 954, indicated that foreseeability is only one factor to be considered.
A similar defense recognized by Texas courts, is the defense of impracticability of performance. Under this doctrine, ““Where … a party’s performance is made impracticable … by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged….” Centex Corp. v. Dalton, 840 S.W.2d at 954. Note, at least one Texas Court of Appeals has indicated that this defense does not exist. (See Huffines v. Swor Sand & Gravel Co., Inc., 750 S.W.2d 38, 40 (Tex. App.—Fort Worth 1988, no writ).) However, given that the Texas Supreme Court in Centex discusses this doctrine in its decision, a solid argument can be made that it is a recognized common law defense in Texas.
Further, if the contract is for the sale of goods, the impracticability of performance defense also exists under Texas Business & Commerce Code § 2.615 which states:
“Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
(1) Delay in delivery or non-delivery in whole or in part by a seller who complies with Subdivisions (2) and (3) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
(2) Where the causes mentioned in Subdivision (1) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
(3) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under Subdivision (2), of the estimated quota thus made available for the buyer.”
Thus, a party seeking to assert this defense will also want to make a determination whether the contract involves the sale of goods.
As a result of the unforeseeable COVID-19 pandemic, governmental orders have been issued closing businesses and schools, restricting travel, ordering workers and consumers to stay home, and disrupting supply chains, making it impossible or impracticable to perform certain contracts. Thus, if you or your business find that you cannot perform the obligations of your contract, you may have a defense under the doctrines of impossibility or impracticability.