The Impossibility Doctrine in Commercial Contracts: An Empirical Analysis
26 Pages Posted: 24 Jan 2019 Last revised: 14 Jun 2019
Date Written: January 13, 2019
The impossibility doctrine – under which a contracting party has no duty to perform the agreement if performance thereof is rendered impossible – is a basic building block of U.S. contract law. The prevailing law-and-economics analysis of this doctrine suggests that when contract performance becomes impossible, courts should assign the contractual risk of non-performance to the superior risk bearer, i.e., to the party that can bear said risk at least cost.
This Article empirically tests, for the first time, the economic theory of the impossibility doctrine. It first hypothesizes that most sophisticated parties to commercial contracts are unlikely to adopt the economic superior risk bearer model given its high implementation costs and its uncertain results. It then aims to expose the actual preference of real-world contract parties for the economic model. By examining 1,926 commercial contracts that were disclosed to the Securities and Exchange Commission (SEC), this Article finds that most parties prefer not to adopt the economic model. This finding casts considerable doubt over the efficiency of this model for the parties.
Keywords: Impossibility, Contracts, Superior Risk Bearer, Empirical Legal Studies
JEL Classification: K12
Suggested Citation: Suggested Citation