Commercial Impracticability

A party to a contract may be relieved of his contractual obligations in the event such obligations have been made excessively expensive, harmful, or difficult to perform. If the parties cannot agree to change the terms of the contract, or to cancel the contract, it would become necessary to prove to a court the commercial impracticability of performing the specific obligations. To explore this concept, consider the following commercial impracticability definition.

Definition of Impracticability

Adjective

1. Incapable of being put into practice, performed, or accomplished with the available means
2. Not being suited for practical purpose or use

Origin

1645-1655   Medieval Latin   im- + practicable

Commercial Impracticability and the Law

The legal doctrine of commercial impracticability is triggered when something happens that makes performance of a contractual duty excessively burdensome, unbearably difficult, or extremely expensive, for the party committed to such performance. Impracticability may become a credible defense to failure to perform duties under a contract, though these situations generally find themselves before a judge, whose duty it is to make a decision. Judging the impracticability of a situation can be difficult, as the matter deals with subjective issues as to the parties’ perceptions, expectations, and understanding of the facts, rather than the hard facts themselves.

Test for Impracticability

Judges in the U.S. judicial system use a test for commercial impracticability that consists of three facts:

1. Something must have happened which as assumed not to have occurred in making the original contract;
2. The occurrence must specifically make certain performance under the contract exceptionally difficult or expensive; and
3. The parties could not have reasonably foreseen that the problem could occur.

The doctrine of commercial impracticability relies on the assumption that, at the time the contract was made, the non-existence of the specific occurrence was a basic assumption central to performance under the contract, but which occurrence, however, unlikely, rendered compliance with certain terms unreasonably difficult or expensive.

For example:

Allen and Emily hire Mark, a landscaping contractor, to install a sprinkler system and new landscaping in their front yard, making a $500 down payment. The day before the installation was to take place, an unexpected storm came in, causing massive flooding in the area, leaving Allen and Emily’s yard covered in two feet of mud, tree branches, and trash. In order for Mark to perform his duties under the contract, he would first have to clean up the debris, then dig through an extra two feet of mud, which would require several days, and extra equipment and manpower.

Impracticability applies in this case in that (1) a storm caused flooding that left a huge amount of mud and debris on the property, (2) the debris left by the flooding made the sprinkler and landscape installation drastically more difficult and expensive, and (3) the flooding could not have been reasonably foreseen by the parties.

Occurrences Not Considered Under the Doctrine of Impracticability

Because the issue of impracticability requires a subjective evaluation of events and issues specific to any contract, the law does not define what may be considered impracticable. The courts do not, however, consider such occurrences as price increases reasonably beyond what is considered the “normal range,” nor does it consider delays in manufacturing or delivery of products or supplies to be impracticable, as these things often happen, and can reasonably be foreseen as risks of even fixed-price contracts.

Force Majeure

Such catastrophic events as earthquakes, tsunamis, floods, crop failure, war, and even governmental restrictions (such as the gasoline rationing in the 1970s), create a legal justification for nonperformance under certain contracts. Force majeure, which means “superior force,” translates to an event that cannot be controlled or reasonably anticipated, but the term is most commonly used in circumstances considered to be “acts of God.”

Consider the 2011 earthquake and subsequent tsunami in Japan. The widespread destruction destroyed commercial facilities, making delivery of products and services impossible. Not only the unavailability of products contributed to commercial impracticability, but the ensuing massive price increases for the limited availability of certain products caused by the natural disaster. In such a case, a major price increase may be enough to trigger the doctrine of impracticability.

Relief Under Impracticability

As circumstances applying to commercial impracticability are, by definition, unforeseeable, they are often not addressed in contracts, making it necessary to take the matter before a judge. The court will take into account all of the circumstances surrounding the contract and the occurrence, as well as the specific language of the contract, and the parties’ obligations, in making a decision that is as fair to the parties as possible. While in many cases the contract may be nullified in its entirety, it is possible for the judge to enforce portions of an agreement, while nullifying or altering other provisions. In no case would it be considered fair for a party to retain payment received when they have failed to perform their own duties, or to provide a promised product, in the event a contract is ruled impracticable.

In other words, in the case of Allen and Emily’s contract for sprinkler and landscape installation, the parties may agree to revise the terms of the contract, requiring the couple to restore the front yard to the general condition it was in prior to the flood before the contractor begins his work. Alternatively, the contract might be voided, and the contractor required to refund the couple’s $500 down payment.

Related Legal Terms and Issues

• Contract – a written or spoken agreement between two or more parties that is enforceable by law.
• Contractual Performance – the fulfillment of a promise or obligation under a legally binding contract.
• Reasonably Foreseeable – the legal concept that a reasonable person would be able to expect or predict an occurrence or outcome of an act or situation.