Update (July 15, 2014): The U.S. Court of Appeals for the 8th Circuit recently affirmed the District of Minnesota’s ruling in favor of Nothern States Power (NSP), covered previously on Minnesota Litigator (below) by Jake Smith:
Assuming, without deciding, that Minnesota courts would apply the doctrine of temporary impracticability to conditions precedent for use as a sword, we conclude that the doctrine has no application on these facts. … The various sources of delay were all foreseeable and manageable in the time frame agreed to in the contracts….The parties foresaw the risk of regulatory and weather delays and accounted for them.
Original post (May 24, 2013): Minnesotans know that the weather here can be terrible (see this past winter). Personally, as a child who vividly remembers the 1991 blizzard on Halloween, I am well aware that the weather in Minnesota can be treacherous and derail important plans. However, sometimes those important plans (ones that have greater impact than not collecting a pillowcase full of candy) need to be completed by a certain date, like when a contract clause says that “time is of the essence” or there is an express condition precedent.
So what happens when weather threatens a deal closing when performance is due? We know that a defendant could argue that the weather made it impossible to close and therefore performance was excused; but could a plaintiff argue that the defendant still had to perform under the contract, even though the contract included an express condition precedent, because performance was temporarily impossible?
This was one of the arguments enXco made an attempt to avoid summary judgment in a huge breach of contract suit against Northern States Power (“NSP”) over a failed wind energy generation project in North Dakota. enXco claimed that NSP’s failure to perform caused over $245 million in damages.
According to the opinion, in 2008, NSP entered into two contracts with enXco, one was a purchase and sales agreement for wind energy assets, including real property, and the other was an engineering and construction contract for $355 million to construct infrastructure a wind energy project. The purchase and sales agreement contained several express conditions precedent, namely that unless certain agreements, permits, licenses, and reports were received and finalized by enXco by a March 31, 2011, then NSP could terminate the agreements. One of the required permits was a Certificate of Site Compatibility, which is required under North Dakota law.
enXco submitted the application for the CSC in October 2010 and a hearing was scheduled for December 21, 2010. That hearing was postponed because of bad weather until February 10, 2011. Thereafter, North Dakota officials realized that the CSC hearing was held in the wrong county and that the application needed a new hearing. The new hearing was set for April 15, 2011 and then later rescheduled because of bad weather. Ultimately, enXco received the CSC on June 8, 2011 – over two months after the date it was required to have fulfilled the conditions precedent.
Because not all of the conditions precedent had been met by March 31, 2011, NSP gave written notice to enXco terminating both agreements. Thereafter, enXco sued for breach of contract, declaratory judgment, and specific performance.
NSP made a motion for summary judgment arguing that it was not required to perform under the contract after enXco did not fulfill the express conditions precedent in the purchase and sales agreement.
A condition precedent is “any fact except mere lapse of time which must exist or occur before a duty of immediate performance by the promisor can arise.” Carl Bolander & Sons, Inc. v. United Stockyards Corp., 298 Minn. 428, 433, 215 N.W.2d 473, 476 (1974). Further, “if the [fact or] event required by the condition [precedent] does not occur, there can be no breach of contract.” 451 Corp. v. Pension Sys. For Policemen and Firemen, 310 N.W.2d 922, 924 (Minn.1981).
enXco argued that summary judgment was not warranted because there was a question of materiality of the breach. Specifically, whether enXco’s failure to obtain the CSC by March 31, 2011 was a material breach of the contract.
Chief Judge Michael Davis (D. Minn.) agreed with NSP that enXco’s failure to satisfy a condition precedent excused it performing under the contract and that a materiality analysis was inappropriate and granted NSP’s motion for summary judgment.
The most interesting thing about this case was enXco’s attempt to argue that its nonperformance of the conditions precedent may be excused because it was temporarily impossible to obtain and transfer the CSC prior to March 31, 2011. Generally, the doctrine of temporary impossibility has been recognized as a defense to a breach of contract claim. Pac. Trading Co. v. Mouton Rice Milling Co., 184 F.2d 141, 148 (8th Cir. 1950).
NSP argues that using the doctrine of temporary impracticability offensively is improper, as it conflicts with the element of a breach of contract claim that requires proof of “performance by plaintiff of any conditions precedent to his right to demand performance by the defendant.” Park Nicollet Clinic, 808 N.W.2d at 833. In other words, enXco cannot sue for breach of contract despite conceding that it did not satisfy all conditions precedent.
enXco responded and argued that and that courts have found that a plaintiff can pursue a claim for damages based on the theory of temporary impossibility, citing cases from Connecticut state case and the 7th Circuit decision. Chief Judge Davis distinguished the federal case stating that the facts of the case, its procedural posture, and the restrictive view of the law used to interpret the contract made it inapplicable.
Although no Minnesota court has addressed the issue of whether the doctrine of temporary impracticability can be used to support a claim for damages, the Court finds that, based on the unique facts of this case and the relevant terms of the contracts at issue, Minnesota law would not support use of the doctrine to support a claim for damages.
What are some takeaways from this case?
- Temporary impracticability cannot be used to support a claim for damages in Minnesota, and
- Weather in North Dakota must be pretty bad, maybe even worse than Minnesota.