Contract Law - Illinois Court Rejects Impossibility of Performance Defense

The case captioned, YPI 180 N. LaSalle Owner, LLC, v. 180 N. LaSalle II, LLC, 1-09-1797, provides an interesting discussion of the impossibility of performance doctrine.

The Plaintiff was an assignee of a contract to purchase real estate. It argued that the 2008 financial crisis following the failure of Lehman Brothers made it impossible to obtain financing and therefore it was excused from performance.

The Court, like the trial court, rejected the rescission claim. The court noted that "Rescission is an equitable remedy that seeks to restore the contracting parties to their precontract positions." Opinion at 5.

The Court noted that "impossibility of performance as a ground for rescission of a contract refers to those factual situations where the purposes for which the contract was made have, on the one side, become impossible to perform." See 30 R. Lord, Williston on Contracts, Section 77:95 (2004). The court noted that the impossibility defense is limited "to the destruction of the means of performance by an Act of God, vis major, or by law" and that performance should only be excused in extreme circumstances. Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1294 (Fed. Cir. 2002); Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900, 902, 519 N.E. 2d 295, 296 (1987). More importantly, "where a contingency that causes the impossibility might have been anticipated or guarded against in the contract, it must be provided for by the terms of the contract or else impossibility does not excuse performance.

Here, Plaintiff's claim was rejected because it was foreseeable that a commercial lender might not provide the required financing to complete the real estate purchase.

Comment: this is a novel and creative attempt by the plaintiff's lawyer to rescind a real estate contract, but it did not convince the trial court or the Illinois Appellate Court. As the court noted, if the inability to obtain commercial financing, standing alone, were sufficient to excuse performance...., then the law binding contractual parties to their agreements would be of no consequence." The Court is correct, the Plaintiff could have negotiated for a financing contingency in the contract, but apparently failed to do so. Opinion at 10.

Edward X. Clinton, Jr.