Supervening Events and Change of Circumstances
At stake is Stability of Contracts and Sanctity of Consent vs. Fairness
Three scenarios
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Impossibility (a thing perishes after sales contract, but before it is handed over).
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Performance is possible, but due to change of circumstances, no longer useful to the party (Coronation Parade cases).
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Performance is not impossible, but due to change of circumstances it is no longer commercially practical or extremely onerous (Changes in the market, Gilbert Steel).
Solutions?
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Parties anticipated the issue in the contract: Drafting and interpretation of such clauses
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Parties did not anticipate the issue in the contract, but are willing to negotiate adjustments post-formation (sometimes must litigate to force a party gaining a windfall to renegotiate)
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The judge decides
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Enforce the contract (you promised, so too bad - very 19th century)
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Terminate the contract (accept the excuse of non-performance, debtor discharged – extremely anti-classical)
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Order parties to renegotiate in good faith (weak because one party doesn’t want to negotiate)
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Adapt the contract to changed circumstances (rewriting the contract – most encroaching to autonomy)
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Impossibility of Performance in CVL
Article 1693
A debtor is released where he cannot perform an obligation by reason of a superior force and before he is in default, or where, although he was in default, the creditor could not, in any case, benefit by the performance of the obligation by reason of that superior force, unless, in either case, the debtor has expressly assumed the risk of superior force.
The burden of proof of superior force is on the debtor.
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Article 1694
A debtor released by impossibility of performance may not exact performance of the correlative obligation of the creditor; if the performance has already been rendered, restitution is owed.
Where the debtor has performed part of his obligation, the creditor remains bound to perform his own obligation to the extent of his enrichment.
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CVL Impossibility Test
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Contract established.
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Event occurs after the contract has been signed, destroying the vendor’s object.
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Buyer sues the vendor for performance.
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Vendor needs to prove impossibility of performance due to superior force (no fault of the vendor can contribute to the superior force).
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If the superior force was foreseeable and the vendor did not take precautionary actions – then it is his fault, also check the contract to see if anyone has assumed the risk.
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If he meets the criteria, the vendor doesn’t need to perform – VOID, but there is restitution for the money that the buyer has already given.
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If the buyer has stipulated in the K (Otis).
Otis Elevator v. Viglione
Beyond impossibility, the Code does not recognize hardship or impracticability as excuse
No liability in case of delay “due to any cause beyond your and our reasonable control”
The strike was not impossibility, but since there was a stipulation saying that strikes are force majeure, Otis was not held liable
CVL – Otis Elevator Co. Ltd. v. A. Viglione & Bros. Inc., Mtl., 500-09-000316-786 (C.A.): CB2 22 |
Jurisdiction
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Quebec
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Facts
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K b/n Otis (appellant) and A. Viglione & Bros.(respondent) for installation of elevators. Clause in K read that neither party would be liable to the other party for any loss, damage or delay due to any cause beyond the party's reasonable control, including but not limited to, strikes, lockouts… Otis started work in January. In February, workers' productivity slowed. By late April, all elevator workers had gone on strike. Viglione sued for damages suffered as result of non-execution.
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Issues
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Was the strike a force majeure that excused Otis from performance?
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Holding
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Not a force majeure but explicit term deals with strikes and releases Otis from obligation.
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Reasoning
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A strike doesn't constitute a case of force majeure. Parties may contractually specify that some event, though it doesn't render execution absolutely impossible, will be a case of force majeure.
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C.S. found that Otis didn't prove the absolute impossibility of the execution of the K; thus, the Court did not liberate Otis from its obligations under the K. Damages were awarded for loss of rents and other expenses.
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The delay was the result of strike or lockout. Strikes and lockouts are not, in and of themselves, cases of force majeure. However, K in this case, explicitly specified strikes and lockouts as causes outside of the reasonable control of the party. The aplt is thus not responsible to the rspdt for such the delay because it was a cause outside the reasonable control of the aplt.
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Ratio
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Comments
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In absence of force majeure clause would have found against Otis - b/c strike is not a force majeure.
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Why is strike not force majeure? TEST: Impossibility - may be possible to get other employees (on K) to fulfill duties. BUT…even if not impossible Unforeseeability - co. with unionized workers = foreseeable that they would go on strike.
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Quebec law does not accept “l’imprévision” or “hardship” as an excuse for non-performance or as a reason to adjust the contract
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Germany and France use “l’imprévision” as an excuse for hardship (history of inflation during the 20’s – tripled each year)
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Quebec doesn’t have this history, ongoing discussion whether Quebec law should adopt the approach of other Civil Law systems, model codes, etc.
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Could possibly use good faith as a way of ensuring that each party is cooperating and trying to ensure the best outcome for both parties (when a contract is too onerous, one can renegotiate in good faith)
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