IMPOSSIBILITY OF PERFORMANCE OF CONTRACTS DUE TO WAR-TIME REGULATIONS

THE

I

INTRODUCTION

HE far-reaching control which during the period between the declaration of war and the signing of the armistice with Germany it was found necessary for the government to exercise over the production, consumption, and movement of commodities brought about an unprecedented disturbance of the ordinary contract relations between producers and consumers of almost every conceivable article of commerce. Whether a particular commodity was found to be necessary for war purposes or was considered nonessential, the need of the government for the one and the need of preventing labor and capital from being absorbed in the production or transportation of the other led to a drastic interference with the contracts of private citizens relating to each. As a general rule the parties to such contracts appear to have treated losses thus caused them as part of the fortunes of war, and hence litigation between buyer and seller growing out of this situation has up to this time, so far at least as the reported cases show, been of extremely rare occurrence. It seems not improbable, however, that this reluctance to litigate may be diminished now that the period of active warfare has come to an end; and, in any event, the problems presented by the war-time interference with contracts, whether or not they are to lead to litigation and hence to judicial decisions, are of a sufficiently novel character to be of considerable interest to the student of the law of contracts.

Prior to the war, governmental interference with contracts was confined almost entirely to the enactment of laws, or of regulations and ordinances having the force of law, by virtue of which the making of certain subsequent contracts or the performance of certain preexisting ones became illegal. That governmental action might render performance of a contract impossible rather than

1

unlawful was indeed recognized both by courts and by textwriters, but the cases in which governmental action had had this effect were comparatively rare.

A somewhat different situation existed during the period of active warfare. Since the war was to an unprecedented extent an industrial as well as a military one, the control exercised over the industries of the country in the interest of war-making was of a sort for which no precedent can be found in the history of previous conflicts in which this country has been engaged. To some extent this was accomplished through the medium of regulations issued under some federal statute authorizing the executive to prohibit certain forms of business activity, such as hoarding of foods, exporting or importing without a license, etc., deemed to be detrimental to effective war-making. Such statutes and regulations may present important legal problems with regard to the scope of the war power, the right to delegate legislative power and the like, but they do not involve the question with which this article is concerned, namely, that of governmental prevention as contrasted with governmental prohibition.

Prevention, rather than prohibition, was however, in the main, the order of the day. Thus while it was illegal to hoard food or to trade with the enemy, it was, although not illegal, in general impossible to buy or sell toluol or wool, substantially the entire supply of which was taken over by the government, or to fill orders for articles deemed nonessential where these articles could not be produced without large quantities of raw materials of a kind urgently needed for war purposes. It is with such cases of impossibility that we have to deal.

Impossibility of performance is, in general, recognized by our law as an excuse for failure to perform a contract in a limited class of cases only, impossibility in law being by no means coextensive with impossibility in fact.2 How far, if at all, these limits should be extended by judicial decision where the impossibility is due to the act of the government, of which the judiciary is itself a part,

1 See WILLISTON ON SALES, § 661, and cases cited.

2 Impossibility of performance has been recognized as a defense where due (1) to a change in the law; (2) to death or illness in contracts requiring personal service; (3) to a destruction or change in the character of the goods to which the contract relates; (4) to a failure of the contemplated means of performance, the limits of this latter doctrine being very ill-defined. See WILLISTON ON SALES, § 661.

is a question on which there is naturally but little authority in view of the fact that governmental interference has, as has been stated, been normally of such a character as to present problems with regard to illegality rather than impossibility. It would appear, therefore, that courts are free to regard the problems arising out of governmental interference in war time as to a large degree sui generis, and that they need not adhere strictly in cases of this sort to the precedents which have been established in the law of impossibility of performance in general, but are at liberty to reach the results most consistent with justice and public policy, as long as these results can be attained with due regard to the more fundamental principles of the law of contracts.

II

REMOVAL OF SUBJECT MATTER OF CONTRACT BY
REQUISITIONING

The ordinary rules with regard to impossibility will, however, furnish an adequate solution to a number of the problems presented by war-time governmental interference with contracts. Thus where a contract for the sale of specific goods has been rendered impossible of performance by the requisitioning of those goods by the government, there would appear to be no difficulty in treating the requisitioning of these goods as equivalent to their destruction and hence as excusing failure to deliver them according to well-settled contract principles. A recent English case which takes this view of the matter would, no doubt, be followed in this country.

3

More difficult questions may, however, arise where the government has not taken over the title to property but has merely taken the right to its temporary use. A number of cases of this sort have arisen in England involving the effect on a charter party of the requisitioning of the use of a chartered ship by the government. Where the ship has been chartered for the purpose of making a particular voyage it appears to be the view of the English courts. that a requisition which makes the voyage impossible puts an end 3 In re Shipton, Anderson & Co., [1915] 3 K. B. 676.

A similar problem might arise in eminent domain cases in peace times, but eminent domain generally relates to real estate in regard to which the question is materially affected by the doctrine of equitable title.

to the charter party, thus giving to the act of the government the same effect which would be given to an act of God which should bring about a similar "frustration of the adventure," to use the common English term.

A ship may, however, be chartered for a period of months or years rather than for a particular voyage. In such a case the use of the ship by the government would not necessarily be inconsistent with the object of the charter party any more than a temporary injury to the ship from perils of the sea would be. A majority of the House of Lords has accordingly held that the requisitioning of a ship which was under a charter having several years to run did not terminate the charter. In view of the length of the war and the fact that requisitioned ships were seldom returned to their owners during the continuance of hostilities, the result reached in this case has not escaped criticism, and in at least one case involving a time charter the English court of appeal has found it possible to distinguish rather than to follow it.8

III

COMPULSORY GOVERNMENT ORDERS FOR PRODUCTION

Instead of taking possession of the property which is the subject matter of the contract, the government might order the owner to make some use of the property, or of some other property necessary to the performance of the contract, which use would render such performance impossible. Thus Congress conferred upon the President the power to place with a manufacturer or other producer compulsory orders for war material, and required that such orders be given precedence over all other business.9

If the government placed such an order with a manufacturer for a quantity of goods equal to the entire output of his factory, the effect of such order would be to render it impossible for him to perform any private contract he might have made which pro

5 See cases, cited infra, in connection with time charters.

F. A. Tamplin S. S. Co. v. Anglo-Mexican Co., [1916] 2 A. C. 119.

7 See 34 LAW QUART. REV. 126.

8 Countess of Warwick S. S. Co. v. Le Nickel Société Anonyme, [1918] 1 K. B. 372. See National Defense Act of June 3, 1916, 39 STAT. AT L., C. 134, §§ 120, 166. Naval Appropriations Act of March 4, 1917, 39 STAT. AT L., c. 180, 1168; General Deficiency Act of June 15, 1917 [Public — No. 23 — 65th Congress (H. R. 3971)]; Emergency Shipping Fund provisions.

vided either expressly or by implication for the production of goods in that factory, except by denying to the government order the precedence to which it was entitled by statute. It may be argued, therefore, that the case is one in which performance had become illegal, but the legal objection is not due to any impropriety in the contract itself, but solely to the fact that, under the existing circumstances, performance could not be given consistently with the fulfillment of the legal duty of giving such preference to the government order as was necessary in order to carry it out on time. Should the contractor have found some means of so increasing the productivity of his plant as to perform both his contract and the government order the law would have had no objection to his doing so. It seems more accurate, therefore, to treat the case as one in which the government order, because of the legal consequences attaching to it, made performance impossible rather than as a case of illegality. The case is thus substantially similar to the requisitioning, or, apart from the temporary character of the impossibility, to the destruction of the factory by an act of God, and has properly been treated as at least a suspensive defense for failure to perform.10

In that case the court assumed that the defense was merely suspensive and that the defendant would have been compelled to perform after completing the government order, had the contract not been repudiated by the plaintiff prior to that time. It is believed, however, that performance is not merely suspended but entirely excused provided the delay is a material one, since to require performance after a long delay would be "not to maintain the original contract but to substitute a new contract for it.""1

Frequently, however, a government order did not require even for a time the use of the entire machinery of a plant. Where such was the case it would frequently have been possible for the manufacturer to perform one or more of his private contracts without denying to the government order its statutory priority, but not to perform all such private contracts. It is believed that the

10 Moore & Tierney, Inc. v. Roxford Knitting Co., 250 Fed. 278 (1918).

11 Metropolitan Water Board v. Dick, Kerr & Co., [1918] A. C. 119. This case decides that a regulation of the Ministry of Munitions which made work on a reservoir impossible for a considerable length of time did not suspend the contract for the work but terminated it. See, also, Andrew Millar & Co. v. Taylor & Co., [1916] I K. B. 402, dealing with the effect of a temporary embargo.