In contract law, the doctrine of impracticability serves as a defense when fulfilling the terms of a contract becomes excessively difficult or expensive due to unforeseen circumstances. However, this principle is not to be confused with mere inconvenience or higher costs. Impracticability requires that the performance becomes so extreme that enforcing the original obligations would be unjust. Courts apply this doctrine narrowly, meaning not all hardships qualify. This topic will explore what conditions must be met for a party to invoke impracticability, its legal origins, and real-world implications under U.S. contract law.
Understanding the Legal Standard of Impracticability
Not Just Difficulty It Must Be Extreme
The central idea behind impracticability is that performance becomes ‘impossible in practice,’ though not necessarily physically impossible. The law does not release a party from their obligations simply because performing the duty is now inconvenient or unprofitable. The hardship must be unexpected and severe enough that it significantly alters the basic assumption of the contract.
- It must be more than a 10% or 20% increase in cost or effort.
- Unforeseen events like natural disasters, government actions, or war often qualify.
- The event must not have been caused by the party seeking relief.
Uniform Commercial Code (UCC) Section 2-615
Under UCC § 2-615, which governs contracts for the sale of goods, impracticability is allowed when performance is made impracticable by an unforeseen contingency. The contingency must have been a basic assumption of the contract’s formation. For example, if a manufacturer’s raw material supplier is shut down due to a national embargo, performance might be excused.
Common Law Impracticability vs. UCC Impracticability
Contract Types and Applicability
The doctrine of impracticability under common law applies to service contracts, real estate agreements, and other non-goods-related transactions. UCC impracticability applies specifically to sales of goods. Though similar in spirit, the application and language differ.
- Common law: Relies on the Restatement (Second) of Contracts § 261.
- UCC: Focuses more on commercial practicality and fairness.
Case Examples
In the case ofMineral Park Land Co. v. Howard, the court found that extracting gravel from under a riverbed was so costly and dangerous that it excused the contractor under impracticability. In contrast, courts have rejected impracticability claims when the increased difficulty was foreseeable or covered by the contract terms.
Requirements to Prove Impracticability
Four Key Elements
To successfully invoke the impracticability defense, a party must demonstrate all of the following:
- An unforeseen event occurred: Something the parties did not anticipate when the contract was formed.
- The event makes performance extremely difficult or expensive: More than just a higher cost; it must be prohibitive or unreasonably burdensome.
- The party did not assume the risk: The event must not be something the party agreed to bear in the contract.
- No alternative performance is available: The party must show that reasonable alternatives or substitutions are also impractical.
Examples of Valid Impracticability Claims
Some scenarios where courts have accepted impracticability claims include:
- Destruction of the subject matter (e.g., a factory burns down).
- Government regulations prohibiting performance.
- Outbreaks of war disrupting supply chains.
- Pandemics making labor or materials inaccessible.
Impracticability vs. Impossibility and Frustration of Purpose
Legal Distinctions
Impracticability is often confused with other doctrines like impossibility and frustration of purpose. While these three are related, they serve different legal functions:
- Impossibility: Occurs when it is objectively impossible to perform, such as a performer dying before a scheduled concert.
- Impracticability: Applies when performance is still technically possible but prohibitively burdensome.
- Frustration of purpose: Happens when the contract’s core purpose no longer exists, even if performance is still possible.
Which One to Use?
A business should consult legal counsel to determine which doctrine best applies. Each has different thresholds and legal consequences.
Contract Clauses and Risk Allocation
Force Majeure Clauses
Parties can preemptively plan for impracticability through contract clauses such as force majeure. These clauses list specific events that excuse or delay performance without breach. Common examples include:
- Natural disasters (earthquakes, floods)
- Acts of terrorism
- Government lockdowns or embargoes
- Pandemics or public health emergencies
Negotiating for Flexibility
In drafting contracts, parties should consider what risks are worth assuming and whether flexible performance clauses might be appropriate. Limiting liability or specifying acceptable substitutes can help avoid litigation over impracticability later on.
Litigation and Legal Outcomes
Burden of Proof
The party claiming impracticability carries the burden of proving that the conditions have been met. Courts examine facts closely and often require documentation, expert testimony, or financial data to establish that performance is unreasonably burdensome.
Possible Outcomes
When a court accepts an impracticability defense, it may result in:
- Complete discharge of contractual duties.
- Suspension of performance until conditions change.
- Modification of the contract by mutual agreement.
However, if the court rejects the claim, the party may be found in breach and held liable for damages.
Recent Developments and Practical Considerations
COVID-19 and Impracticability
The COVID-19 pandemic brought renewed attention to the impracticability doctrine. Businesses worldwide faced sudden closures, labor shortages, and supply disruptions. Some successfully argued that pandemic-related conditions excused them from contractual obligations. Courts, however, were not uniformly sympathetic, especially if businesses could have foreseen the risk or failed to include protective clauses.
Business Strategies
To protect themselves, businesses should:
- Review existing contracts for impracticability clauses.
- Add specific language about unforeseen events.
- Use force majeure clauses with detailed coverage.
- Evaluate insurance coverage for supply chain disruptions.
Impracticability requires that the performance becomes so burdensome due to unforeseen events that it would be unjust to enforce the original terms of the contract. It is not a loophole for avoiding unfavorable deals but a narrowly applied doctrine rooted in fairness. Whether under common law or the UCC, proving impracticability requires meeting a high legal standard. Businesses and individuals must plan ahead, include clear contractual terms, and seek legal advice when circumstances change unexpectedly. Understanding the principles of impracticability helps parties manage legal risks and maintain trust in commercial relationships.