This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
An impossibility of performance, which is created by a subsequent valid act of law, operates as a discharge of a contract.1 Subsequent legislation which impairs the obligation of a contract is ordinarily unconstitutional. Under the exercise of the police power, however, the legislature may make illegal the performance of contracts already entered into.2 Thus a contract to transport natural gas from Indiana to Chicago, Illinois, to perform which a pressure of 325 pounds to the square inch is necessary, is discharged by subsequent valid police regulations of Indiana, forbidding gas to be transported at a pressure greater than 300 pounds.3 A contract to construct a railroad on a given route is discharged by a subsequent valid amendment to its charter, the right to make which is reserved by statute, altering the location of the road.4 A contract entered into by a corporation is discharged by the appointment of a receiver of the corporation, and an injunction against its further transaction of business,5 at least where the adversary party elects to treat such facts as discharging him from liability. Thus where A agrees with B to turn over to a bank certain notes and accounts received from B in satisfaction of a debt due to the bank from B, and the bank has refused to accept them, but subsequently consents, A is excused from complying with such demand by the appointment of a receiver under order of the court for such notes and accounts.6 A contract between two street railway companies, that neither will reduce fares below the amount authorized by statute of a certain date, is discharged when the legislature reduces the fare.7 The appointment of a receiver of a corporation, together with an injunction restraining the corporation from collecting and paying out money, does not discharge a contract by the corporation with its general manager prior to the forfeiture of the charter of the corporation.8 A contract whereby A agrees with a school district to remove a schoolhouse is excused where the school district and its agent are enjoined from prosecuting the work, and the injunction is not dissolved soon enough to enable the contractor to resume the work under the contract.9 The order of a public official, if within his legal powers, may operate as a discharge of a contract between other persons. Thus a contract between A and B, whereby A is to clear off standing timber on a specified highway, is discharged by an order of the county commissioners who propose to change the line of the remaining part of the road.10 No liabilitv exists where a steamboat leaves before schedule time, but the government inspector has refused to allow more persons to go on board because it has already all that its license permits it to carry.11 After a contract of insurance was entered into the statutes required a more substantial and expensive structure than that existing. The building insured was thereafter destroyed by fire. The liability of the insurance company under the policy was held not to be limited to the cost of replacing the structure described in the survey.12 A contract to convey realty by "a good and clear title free from all encumbrances " was held not to be discharged by the city's taking part of the realty contracted for to widen a street, after the contract and before the conveyance.13 A contract of a surety on a bond for the appearance of the accused is not, after his default, discharged by the act of the governor in pardoning him.14 An express stipulation against liability for non-performance if the contractor was "lawfully restrained" relieves a canal company for liability for failure to deliver water where the canal was filled in by the county supervisors.15 If the law stops performance for a limited time, this operates as a temporary suspension of the contract, but not as a discharge.16
6 Booth v. .Rolling Mill Co., 60 N. Y. 487.
7 Coin v. Board, etc., 39 111. App. 446; School Directors v. Crews, 23 111. App. 367; Charleston School Township v. Hay, 74 Ind. 127; Smith v. School District, 69 Mich. 589; 37 N. W. 567; Cashen v. School District, 50 Vt. 30. Contra, Hall v. School District, 24 Mo. App. 213, which is subsequently explained in Rudy v. School District, 30 Mo. App. 113, as being a contract to conduct a school in the specific building which was burned.
8 Ontario, etc., Co. v. Galloway Co., 5 Ont. Law Rep. 419.
1 Ottawa v. Ry., 1 Ont. Law Rep. 377; Macon, etc., R. R. v. Gibson, 85 Ga. 1; 21 Am. St. Rep. 135; 11 S. E. 442. Whether legislation which prevents performance of prior contracts is valid, see Ch. LXXX1,
2 Jamieson v. Oil Co., 128 Ind. 555; 12 L. R. A. 652; 28 N. E. 76.
3 Jamieson .v. Oil Co., 128 Ind. 555; 12 L. R. A. 652; 28 N. E. 76.
4 Macon, etc, R. R. v. Gibson, 85 Ga. 1; 21 Am. St. Rep. 135; 11 S. E. 442.
5 Malcomson v. Wappoo Mills, 88 Fed. 680.
6 Howell v. Hough, 46 Kan. 152; 26 Pac. 436.
7 Buffalo, etc., R. R. v. R. R.,
Ill N. Y. 132; 2 L. R. A. 384; 19 N. E. 63.
8 Rosenbaum v. Credit System Co., 61 N. J. L. 543; 40 Atl. 591.
9 Burkhardt v. School Township, 9 S. D. 315; 69 N. W. 16.
10 Burns v. Koochiching, 63 Minn. 239; 71 N". W. 26.