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6 J. Legal Stud. 83 (1977)
Impossibility and Related Doctrines in Contract Law: An Economic Analysis

handle is hein.journals/legstud6 and id is 87 raw text is: IMPOSSIBILITY AND RELATED DOCTRINES IN CONTRACT LAW: AN ECONOMIC ANALYSIS* RICHARD A. POSNER** & ANDREW M. ROSENFIELD*** 0 RDINARILY the failure of one party to a contract to fulfill the performance required of him constitutes a breach of contract for which he is liable in damages to the other party. But sometimes the failure to perform is excused and the contract is said to be discharged rather than breached. This study uses economic theory to investigate three closely related doctrines in the law of contracts that operate to discharge a contract: impossibility, imprac- ticability, and frustration. These are not the only excuses for nonperfor- mance of a contract. Among other excuses, not discussed in this study, is the closely related doctrine of mutual mistake (sometimes called antecedent impossibility). Also related, and only incidentally discussed herein, is the doctrine of Hadley v. BaxendaleI limiting the liability of the breaching party to the foreseeable damages of the breach. There is an extensive legal literature on the set of doctrines that, for want of a more inclusive term, we shall sometimes lump together under the name impossibility. The main conclusions of this literature are summarized in Part IA, next, while Part IB analyzes the subject from the standpoint of economics.2 Part II applies the economic analysis to the leading cases and * This study was supported by a grant from the National Science Foundation to the National Bureau of Economic Research for research in law and economics. It is not, however, an official National Bureau study, because it has not undergone the full critical review accorded National Bureau publications, including approval by the Bureau's Board of Directors. The authors wish to thank Michael Boskin, Richard Epstein, Edmund Kitch, Anthony Kronman, William Landes, Peter Pashigian, George Priest, Kenneth Scott, Robert Willis, and other participants in workshops at the University of Chicago Law School, the University of California (Berkeley) Law School, and the National Bureau of Economic Rcsearch-West, for their helpful comments on a previous draft. ** Professor of Law, University of Chicago Law School; Senior Research Staff, National Bureau of Economic Research. *** Class of 1978, University of Chicago Law School. 1 9 Ex. 341, 156 Eng. Rep. 145 (1854). 2 The subject has received relatively little attention from economic analysts. An early, but unsatisfactory, treatment is Robert L. Birmingham, A Second Look at the Suez Canal Cases: Excuse for Nonperformance of Contractual Obligations in the Light of Economic Theory, 20 Hastings L.J. 1393 (1969); see notes 15-16 infra, and accompanying text. Richard A. Posner, Economic Analysis of Law 49-50 (1973), discusses the economics of impossibility briefly.

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