Impossibility, Initial

From Max-EuP 2012

by Florian Faust

1. Subject matter and purpose

Initial impossibility means that the performance of an obligation is already impossible when the contract which establishes the obligation in question is concluded. The meaning of ‘impossibility’ is the same whether the impossibility is initial or subsequent. The performance may be impossible for the debtor, but not for someone else (subjective impossibility), or for everyone (objective impossibility). The impossibility may be due to physical reasons (eg the item sold was completely destroyed or the singer who has been employed has irrevocably lost his voice) or to legal reasons (eg the law does not allow the creation of the right sold, or the creditor is already the owner of the thing whose ownership is to be transferred to him). It is questionable whether impossibility may also occur if performance is possible but only at disproportionate financial cost (eg the ring sold would have to be retrieved from the bottom of a lake) or disproportionate personal cost (eg the singer would have to leave his sick child in order to comply with the contractual obligation to appear in a performance). As to Art 3(3) Consumer Sales Directive (Dir 1999/44 of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees), the German Federal Supreme Court (BGH) requested the European Court of Justice (ECJ) to give a preliminary ruling on the question whether the national law may allow the seller to refuse bringing the goods into conformity if this would result in the seller incurring costs which would be unreasonable. In the opinion of the BGH, the answer to that question depended on whether such cases were covered by the directive’s term ‘impossibility’ (BGH 14 January 2009, NJW 2009, 1660). The ECJ, however, held that the directive does not allow a defence of disproportionality without going into the meaning of ‘impossibility’ (ECJ Joined Cases C-65/09 and C-87/09 – Gebr. Weber and Ingrid Putz). Cases of unreasonableness, economic impossibility or moral impossibility could also, conceivably, be solved by means of the doctrine of change of circumstances. Moreover, initial impediments can be dealt with through the rules on mistake.

It is generally recognized that the debtor is not obliged to render an impossible performance. However, that does not mean that an obligation which cannot be performed may not entail legal consequences. Thus, the creditor normally (unless, for instance, he is responsible for the impossibility) has to be released from any reciprocal obligation, either automatically (eg § 326(1) BGB) or by a right to terminate the contract (eg Art III.-3:502 DCFR). He may also be entitled to demand the substitute that the debtor received because of the impossibility (such as the benefit under an insurance policy, eg § 285 BGB), or to claim damages. In cases of initial impossibility, the claim for damages can be tied to one of two different circumstances: either that the debtor has undertaken the impossible obligation, or that he has not performed. In the first case his liability is based upon culpa in contrahendo; therefore, the creditor has to be placed in the position he would be in if the contract had not been concluded, ie he can claim reliance damages. In the second case, the creditor is to be placed in the position he would be in if the debtor had correctly performed: he can claim expectation damages.

If the creditor is granted a claim for expectation damages, the question arises whether the general exemptions (eg in case of force majeure) apply or whether these are restricted to subsequent impediments. If claims for damages require fault, in cases of initial impossibility the non-performance cannot serve as basis for such fault because the impossibility occurred before the obligation came into existence.

2. Tendencies in legal development

The Roman rule impossibilium nulla obligatio est (D. 50,17,185) only covered cases of objective impossibility. In cases of subjective impossibility the obligation persisted, in particular if the item sold existed but did not belong to the seller.

Impossibilium nulla obligatio est means that the debtor is not bound to perform in cases of impossibility; this clearly stands to reason. However, it does not necessarily follow that the contract from which the obligation originates is void. In Roman law a stipulation (ie an obligation stricti iuris) to render an impossible performance was invalid. The reasons are subject to debate. Thus, it is argued that in many cases of initial impossibility it would be hard to calculate damages, for instance concerning things which cannot exist (such as a perpetuum mobile) or res extra commercium. Other scholars point to the originally sacred character of the stipulation which made the stipulation of something ‘unreal’ appear as perjury. As to contracts for sale (giving rise to iudicia bonae fidei), greater flexibility prevailed; the seller did not have to render the impossible performance, but a claim for the buyer’s expectation interest was not necessarily excluded. Savigny regarded contracts in cases of initial impossibility as valid if the creditor had not been aware of the impossibility at the time of the conclusion of the contract. From the point of view of the school of natural law, the validity of a contract entailing an impossible performance was in conflict with the concept of freedom of will: as no reasonable human being would assume an obligation which is impossible to perform, an initial impossibility had to be due to a failure of intention. Consequently, contracts were regarded as invalid in cases of both initial objective and initial subjective impossibility, until Friedrich Mommsen again restricted the invalidity to cases of objective impossibility. The invalidity of the contract excluded expectation damages, but not necessarily reliance damages, and the ‘discovery’ of the concept of culpa in contrahendo by Rudolf von Jhering provided the basis for such a liability.

Accordingly, until 2002 § 306 BGB declared a contract for an impossible performance to be void. Under § 307(1) BGB (old version) a party which had known or ought to have known of the impossibility was liable for reliance damages; thus, the creditor of the impossible performance could also be liable. It was generally acknowledged that these rules concerned only the initial objective impossibility. In cases of initial subjective impossibility, most scholars and the courts held the debtor liable for expectation damages regardless of fault. Similarly, the seller of a right was held liable for its existence regardless of fault (§ 437 BGB (old version)).

In other European countries, too, the opinion was widespread that a contract for an impossible performance is void. Thus, § 878 ABGB regulates initial impossibility in the same manner as §§ 306 f BGB in their original version. Articles 1346, 1418(2) Codice civile and Art 20(1) OR declare a contract for an impossible performance to be void. According to Art 1601(1) French Code civil, a contract of sale is void if the item sold has been destroyed before the conclusion of the contract. In English law the problem was traditionally considered from the point of view of mistake; in cases of initial impossibility the contract could be invalid due to a common mistake. But s 6 Sale of Goods Act 1979 resembles the rules found in the above-mentioned systems of law: it declares a contract for the sale of specific goods void if the goods without the knowledge of the seller had perished at the time when the contract was made. In contrast, under the Nordic legal systems the contract is valid in spite of an initial impossibility.

§§ 306, 307 BGB in their original version were heavily criticized. Their field of application was substantially restricted by giving priority to the rules on non-conformity, and therefore not applying §§ 306, 307 BGB in case of initial incurable defects, or by implying tacit guarantees (guarantee, independent). In the course of the reform of the law of obligations in 2002, these provisions were abrogated. Today § 311a(1) BGB provides that initial impossibility does not render the contract void. § 311a(2) BGB grants the creditor of an obligation which is impossible to perform a claim for expectation damages (damages in lieu of performance) if the debtor was aware, or should have been aware, of the impediment when he entered into the contract. No difference is made between objective and subjective impossibility; both the invalidity of the contract in cases of objective impossibility and the debtor’s strict liability in cases of subjective impossibility were abolished. The basis for the debtor’s liability is the non-performance and not the fact that he assumed an obligation he was unable to perform. In contrast to other breaches (§ 280(1) BGB), the claim for damages cannot be tied to a breach of duty because in cases of initial impossibility there was at no time an obligation to perform. Therefore, the negligence requirement is related to the debtor’s knowledge at the time of the conclusion of the contract.

3. International uniform law and international model laws

The sets of rules of international uniform law and international model laws do not follow the traditional concept that initial objective impossibility renders the contract void.

The CISG (sale of goods, international (uniform law)) does not contain specific provisions on initial impossibility. It can be inferred from Art 68, 3 CISG that a contract for the sale of goods in transit is valid even if the goods had already been lost at the time of the conclusion of the contract. Hence, the prevailing opinion assumes that the validity of the contract in cases of initial impossibility is not a question of validity within the meaning of Art 4, 2(a) CISG and is therefore not left to national law; rather, a contract governed by the CISG is valid even in cases of initial impossibility. The creditor may declare the contract avoided under Arts 49(1)(a), 64(1)(a), 25 CISG and may claim expectation damages under Arts 74 ff CISG. According to the prevailing opinion, the exemption in Art 79 CISG also applies to initial impediments; hence it is not necessary to distinguish between initial and subsequent impossibility.

Article 4:102 PECL (Principles of European Contract Law), Art 3.1.3 UNIDROIT PICC 2010 and Art II.-7:102 DCFR state that a contract is not invalid merely because at the time it is concluded performance of any obligation undertaken is impossible (or because a party is not entitled to dispose of assets to which the contract relates). Of course, the claim for specific performance is excluded (Art 9:102(2)(a) PECL; Art 7.2.2(a) UNIDROIT PICC 2010; Art III.-3:302(a) DCFR), but the contract may give rise to claims for expectation damages. The Comments to the PECL point out that in cases of initial impossibility there will often be a fundamental mistake (in particular in the form of a shared mistake), and therefore the parties will have the right to avoid the contract under Art 4:103 PECL (see illustrations 5 and 7 to Art 4:103 PECL); similarly under Art 3.2.2 UNIDROIT PICC 2010 and Art II.-7:201 DCFR a right to avoid the contract for mistake may be available. The creditor may terminate the contract because of the impossibility under Arts 9:301(1), 8:103 PECL, Art 7.3.1 UNIDROIT PICC 2010, Art III.-3:502 DCFR; under Arts 9:501 ff PECL, Arts 7.4.1 ff UNIDROIT PICC 2010, Arts III.-3:701 ff DCFR he may claim expectation damages. The rules on excuse due to an impediment (Art 8:108 PECL; Art III.-3:104 DCFR; Art 7.1.7 UNIDROIT PICC 2010) do not apply in cases of initial impossibility (see Comment B to Art 8:108 PECL).

The Consumer Sales Directive mentions the impossibility of performance only in respect of the repair or replacement of defective goods, as one of the cases in which the buyer may immediately require a reduction of the price or have the contract rescinded (Art 3(3)1 Consumer Sales Directive). No distinction is made between initial and subsequent impossibility; hence the provision also applies to initial impossibility. Therefore, it is assumed that the impossibility does not render the contract (partially) void (see Art 8 Consumer Sales Directive). A similar rule is to be found in Art 26(3) of the Proposal for a Directive on consumer rights.

Literature

Friedrich Mommsen, Beiträge zum Obligationenrecht, Erste Abtheilung: Die Unmöglichkeit der Leistung in ihrem Einfluß auf obligatorische Verhältnisse (1853); Ernst Rabel, ‘Origine de la règle impossibilium nulla obligatio’ in Mélanges Gérardin (1907) 473 = Gesammelte Aufsätze, vol IV (1971) 105; Reinhard Zimmermann, The Law of Obligations (1996) 686 ff; MM van Rossum, Art 4:102 in Danny Busch and others (eds), The Principles of European Contract Law and Dutch Law. A Commentary (2002); Reinhard Zimmermann, ‘The Civil Law in European Codes’ in Hector L MacQueen, Antoni Vaquer and Santiago Espiau (eds), Regional Private Laws and Codification in Europe (2003), 18, 31 ff; Tom Southerington, ‘Impossibility of Performance and Other Excuses in International Trade’ in Michael Maggi (ed), Review of the Convention on Contracts for the International Sale of Goods (CISG) 2002–2003 (2004) 249; Claus-Wilhelm Canaris, ‘Grundlagen und Rechtsfolgen der Haftung für anfängliche Unmöglichkeit nach § 311a(2) BGB’ in Festschrift Andreas Heldrich (2005) 11; P Lamiceli, Art 4:102 in Luisa Antoniolli and Anna Veneziano (eds), Principles of European Contract Law and Italian Law. A Commentary (2005); Martin Josef Schermaier, ‘§ 275. Ausschluss der Leistungspflicht’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/1 (2007); Jan Dirk Harke, ‘§ 311a. Leistungshindernis bei Vertragsschluss’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), Historisch-kritischer Kommentar zum BGB, vol II/2 (2007).

Retrieved from Impossibility, Initial – Max-EuP 2012 on 02 October 2022.

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