11
Uncontrollable Event Risks
HAZARDS
Events and acts beyond the control of parties can adversely aect their
transaction. Such acts and events may be the work of natural forces or
human agents. Such agents may be government agencies or private third
parties, individuals, and entities. The actions of individuals and entities
may be those of specific persons that directly aect parties to a transaction
or those of many individuals and entities acting in the markets. Market
changes are discussed in chapter 12.
Uncontrollable Events: Nature and Third Parties
Each incident, the occurrence or nonoccurrence of which is beyond
the parties’ control and aects their transaction, can be described using
three variables:
● whether such incident was (1) the occurrence of an event that
was not expected to or it was hoped would not occur, or (2) the
nonoccurrence of an event that was expected to occur or it was
hoped would occur,
● whether the incident aected (a) benefit realization or (b) task
completion, and
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● whether benefit realization or task completion was as a result of
such incident partly or wholly (i) reduced, (ii) delayed, or (iii)
made more expensive.
These variables can be combined to describe each uncontrollable
incident. For example, a storm that delays a contractor’s completion
of a construction project beyond the scheduled date would be a
(1)(b)(ii) scenario: an uncontrollable event that delays completion
of a task. If additional cost is also the result, the scenario would be
(1)(b)(ii) and (1)(b)(iii). Payment of a successor liability claim— a
liability of the seller of a business that is automatically assumed by the
buyer of that business— would be a (1)(a)(iii) scenario: realization of
the value of the acquisition is made more expensive by the claim.
When task completion is impaired, partly or wholly, or delayed by an
uncontrollable event, such incident can be further described using two
additional variables:
● whether the task was intended to be completed for (A) the benefit
of the party completing it or (B) the other party, and
● whether, in the case of (B), the eect of the event was to (I)
constrain or otherwise impair performance or (II) to induce an
obligor to choose between two adverse outcomes: performance
and suering or risking suering a harm, on one hand, and not
performing and avoiding that harm or risk, on the other.
These variables can be combined with the first three groups to
describe each uncontrollable incident, with the result that 32 scenarios
are possible. The storm example would be a (1)(b)(ii)(B)(I) scenario: the
storm is an uncontrollable event that delays the contractor’s performance
(completion of a task for the other party’s benefit is impaired).
Understanding of all 32 scenarios will help to identify the dierent risk
allocation devices needed to manage the dierent uncontrollable event
hazards, though they are not all described in detail here.
Two other variables often stand out in the occurrence of
uncontrollable events. These are
● whether the incident was the product of (1) natural forces or
(2) human agency, and
● whether, if it was the product of human agency, the agency was
(a) a private individual or (b) a governmental agency.
Third-Party and Uncontrollable Event Risks
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Where the dierent combinations of the first four variables may
aect the choice of contractual device to manage the resulting risk, the
last two variables do not. They help to understand the considerable range
of uncontrollable events that can aect a transaction.
Events and Nonevents
An uncontrollable event is easily imagined. The words “act of God”
conjure the image of a violent, natural event beyond the parties’ control,
such as an earthquake or an outbreak of thunder and lightning. What
is less obvious is how nonoccurrence of an event can adversely aect a
transaction. A transaction can be structured such that benefit realization
or task completion can be achieved only if an uncontrollable event occurs.
The passage of time without its occurrence results in such benefits not
being realized or tasks not being completed as anticipated. An example
is winning the lottery. Winning depends upon the occurrence of a highly
improbable, uncontrolled event: drawing by the lottery of a sequence of
numbers that match a participant’s ticket. The risk to the lottery ticket
buyer is that such event will not occur.
The following cases illustrate uncontrollable events that did not
occur as expected, and as a result the transaction outcomes were also not
as expected:
● Chugach Electric Association v. Northern Corp.1: A contractor agreed
with a utility to repair the face of a dam using rock to be quarried
from a specific source and stockpiled “for transport across Cooper
Lake to the dam site when such lake is frozen to a sucient depth
to permit heavy vehicle trac thereon.”2 When winter came, the
contractor considered the ice too thin to traverse with heavy trucks,
while the utility thought it suciently thick for work to continue.
The contractor eventually attempted a crossing with two half-
loaded trucks, but they broke through the ice and sank, resulting
in the death of one driver. The utility then agreed the operation
could not continue. The contractor terminated the contract.3
1 518 P.2d 76 (Alaska 1974), rehearing (rehg) over damages, 523 P.2d 1243 (Alaska 1974),
a’d. 562 P.2d 1053 (Alaska 1977).
2 Id. at 78.
3 Citing impossibility, the contractor also sued for costs incurred through the date of
termination; the utility cross- claimed for damages. The trial court found the contract had
been discharged by impossibility and dismissed both parties’ claims. On appeal, the Alaska
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