Impossibility of Performance – Inconsistent Obligations in Contracts

In English law, independently negotiated contracts create separate, enforceable contractual obligations. Each contract stands alone and may be enforced independently of each of the other contracts. With these multiple contracts in force, an inconsistency may exist whereby the obligations imposed by one contract may be inconsistent with or conflict with one of the other contracts entered into between the parties. The question is, how is this inconsistency resolved amongst the all of the obligations imposed by all if the contracts in English law? This situation differs from that where a single contract imposes conflicting obligations. This latter situation is resolved by applying principles of construction of the contractual document(s) which constitute the contract.

There are several situations where an inconsistency amongst separate contracts may arise. In this article, we discuss two.

Impossibility created by one Party

Suppose person A enters into a contract with B to refrain from performing some act, and person A subsequently enters into another agreement with C to perform that same act. This state of affairs places A in a position where it is impossible to perform both contracts and thus disabled himself from performing one of the contracts.

In the event that person A has disabled himself from performing a contract in a fundamental or essential respect, person B or C may be entitled to treat himself as discharged from further obligation from that contract. Whether or not person A is incapable of performing the contract will be decided on the balance of probabilities. Whether or not the contract can be performed is a question of fact – it must be the case that the act or omission of person A de facto renders performance impossible. B should discover first which of the two contracts A intended to breach, and then B or C as the case may be would be entitled to treat the respective contract as repudiated.

The event leading to the impossibility of performance may be inadvertent or deliberate. In either case the innocent party, in this case person B, is entitled to terminate the relevant contract and sue for damages. Where the breach is not of a fundamental nature, going to the root or very essence of the obligations to perform imposed by the contract, the innocent party will not be entitled to terminate the contract, and is left with his right to sue for damages for the breach of warranty.

In genuine cases of impossibility, a claimant must show that it was in fact impossible for the opposing party to perform both contracts. A claimant may seek to assert a breach of contract on the basis that the defendant as a reasonable person did not intend to was not able to perform his promise.

Mutually reconcilable Obligations

In many situations, it may be the case that the obligations imposed by two or more contracts impose reconcilable obligations rather than inconsistent or repugnant obligations. For instance, suppose person A undertakes to person B to pay a series of expenses related to a project. Then suppose, person B enters into a related contract with person C on the recommendation of A, that B will incur expenses on a connected project with C. What is the position of A?

By the first contract between A and B, person A may be said to have indemnified B against paying expenses on the project. In the contract between B and C, it may be, given sufficient nexus between the two projects, that B may call on A to indemnify B for the expenses incurred on the second project. It is a matter of construction of the particular contracts and the nexus between them. Each situation must be assessed on the facts of the case and its own merits.

Conclusions

In cases of impossibility of performance, the result in any given case will turn on the facts of the case, which will include (1) the knowledge of the parties at the time they enter into the agreements and (2) the terms of the respective contracts and (3) the circumstances that lead to the impossibility.

If it is the case that it becomes impossible for the one contracting party to perform only part of one contract, then it will depend upon whether the impossibility goes to the essence of the bargain between the contracting parties to determine whether the innocent party has a right to terminate the contract and sue for damages, or merely sue for damage suffered as a result of a breach of warranty.