(1) The mere fact that at the time of the conclusion of the contract the performance of the obligation assumed was impossible does not affect the validity of the contract.
(2) The mere fact that at the time of the conclusion of the contract a party was not entitled to dispose of the assets to which the contract relates does not affect the validity of the contract.
1. Performance impossible from the outset
Contrary to a number of legal systems which consider a contract of sale void if the specific goods sold have already perished at the time of conclusion of the contract, paragraph (1) of this Article, in conformity with the most modern trends, states in general terms that the mere fact that at the time of the conclusion of the contract the performance of the obligation assumed was impossible does not affect the validity of the contract.
A contract is valid even if the assets to which it relates have already perished at the time of contracting, with the consequence that initial impossibility of performance is equated with impossibility occurring after the conclusion of the contract. The rights and duties of the parties arising from one party’s (or possibly even both parties’) inability to perform are to be determined according to the rules on non-performance. Under these rules appropriate weight may be attached, for example, to the fact that the obligor (or the obligee) already knew of the impossibility of performance at the time of contracting. The rule laid down in paragraph (1) also removes possible doubts as to the validity of contracts for the delivery of future goods.
If an initial impossibility of performance is due to a legal prohibition (e.g. an export or import embargo), the validity of the contract depends upon whether under the law enacting the prohibition the latter is intended to invalidate the contract or merely to prohibit its performance.
Paragraph (1) moreover departs from the rule to be found in some civil law systems according to which the object (objet) of a contract must be possible.
The paragraph also deviates from the rule of the same systems which requires the existence of a cause, since, in a case of initial impossibility, the cause for a counter-performance is lacking (see Article 3.1.2).
2. Lack of legal title or power
Paragraph (2) of this Article deals with cases where the party promising to transfer or deliver assets was not entitled to dispose of the assets because it lacked legal title or the right of disposition at the time of the conclusion of the contract.
Some legal systems declare a contract of sale concluded in such circumstances to be void. Yet, as in the case with initial impossibility, and for even more cogent reasons, paragraph (2) of this Article considers such a contract to be valid. Indeed, a contracting party may, and often does, acquire legal title to, or the power of disposition over, the assets in question after the conclusion of the contract. Should this not occur, the rules on non-performance will apply.
Cases where the power of disposition is lacking must be distinguished from those of lack of capacity. The latter relate to certain disabilities of a person which may affect all or at least some types of contract concluded by it, and falls outside the scope of the Principles (see Article 3.1.1).