Impossibility of Performance in Non-UCC Contracts

Written by: Matthew Haan, Esq.

The novel coronavirus and COVID-19 have caused devastating economic consequences in the United States. As thousands of businesses are forced to layoff or furlough employees—or worse, close operations—many landlords and tenants are wondering how the pandemic and related government closures affect their leases for commercial property. Some contracts have force majeure (French for “superior force”) clauses. These clauses contemplate the occurrence of unforeseen events that make performance of a contract impossible, and they have the potential of excusing delay or nonperformance if the conditions precedent within the force majeure clause exist.

However, it is not uncommon for contracts to be completely silent regarding global pandemics and other events that the parties to a contract did not contemplate at the time of execution. The doctrine of impossibility of performance is potentially helpful when a non-UCC contract does not contain a force majeure clause. Impossibility of performance “excuse[s] nonperformance . . . [i]f performance of the terms of a contract becomes impossible as a result of an act of God.” O.C.G.A. § 13-4-21. There are limitations to impossibility of performance. The statutory doctrine does not apply where the impossibility of performance “might have been avoided by the promisor.” Id. An act of God has historically been an accident produced by physical causes, such as lightning, storms, and earthquakes. Cannon v. Hunt, 113 Ga. 501, 509 (1901). Further, following the 2008 recession, the Northern District of Georgia interpreted Georgia law to mean that “economic downturn” is not an act of God. Elavon, Inc. v. Wachovia Bank, Nat. Ass’n, 841 F. Supp. 2d 1298, 1307–08 (N.D. Ga. 2011).

Georgia courts have not yet addressed whether pandemics are acts of God under statutory law and common law. However, as the economic consequences of COVID-19 continue to sweep the nation, the courts are likely going to be presented with a myriad of contract defenses related to the unprecedented pandemic. It may be only a matter of time until Georgia courts address the issue of impossibility of performance in the context of economic downturn caused by a global pandemic.