Changed Circumstances - Impracticability

The general rule is that performance of a contract will be excused if the performance is made impracticable by an occurrence that neither party to the contract anticipated and which would make performance extremely and unreasonably difficult. There are several types of impracticability cases.

The first type of impracticability is where the subject of a contract becomes illegal before the date of performance. In such an instance, performance is excused. For example:

CVS Pharmacies orders one million cartons of aspirin from the Bayer Corp. The parties agree that Bayer will ship the aspirin on April 1st. On March 15th, the United States bans the import of aspirin. In this case, both parties are excused from performing because performance has become illegal due to a change in the law. See Cordes v. Miller, 39 Mich. 581 (1878).

Second, a promisor’s duty to perform is excused if the subject matter of the contract is destroyed. For example:

The Boston Red Sox schedule a series of goodwill exhibition games with a traveling professional team from Japan. One month before the games are supposed to begin, the Red Sox contact the owner of Pawtucket Stadium and enter into a contract with the team under which, the Red Sox will play seven games at the stadium and pay the owner $100,000 per game. Two weeks before the first game is supposed to be played, the stadium burns down. In this case, assuming that the fire was not the owner’s fault, the owner’s duty to perform is excused because the subject matter of the contract, the stadium, has been destroyed.

Third, a seller’s duty to provide goods to a buyer will be excused if the goods were supposed to come from a particular place and the supply of goods from that particular place fails. For example:

Sunshine Orange Groves have several different orchards from which they harvest oranges. However, their best oranges come from their northern orchard. Squeeze Me enters into a contract with Sunshine, under which Sunshine will send Squeeze Me five thousand bushels of oranges from the northern orchard and Squeeze Me will pay $5 per bushel. Due to an unusually cold winter, the northern orchard’s crop fails. In this situation, Sunshine’s obligation to provide Squeeze Me with the oranges is excused. See Anderson v. May, 50 N.W. Minn. 280 (1892).

The fourth impracticability case involves situations where the subject of the contract is destroyed but only after performance has already begun.

This usually comes up in construction contracts where a construction company is hired to build a building, the company begins performance, and the partially finished building is destroyed.

The general rule is that the destruction of the building does not excuse the contractor’s performance. In other words, the building being destroyed does not represent impracticability because the construction company can start over. In fact, if the contractor does not begin building again, he will be in breach of the contract. In addition, if the contractor refuses to rebuild, he will not be entitled to collect for the work he had completed before the building was destroyed.

The rule is a bit different where the contract calls not for a building to be built, but for an existing building to be repaired.

If a contractor is supposed to repair a building and the building is destroyed after he begins performance, the contractor’s duty to perform is excused and he will be able to recover for whatever work he had completed before the destruction of the building.

As far as contracts for the sale of goods is concerned, the U.C.C. says that if the contract involves goods that were identified specifically and those goods are destroyed before the risk of loss shifts from the buyer to the seller, the contract will be excused. For example:

Anderson Auto Bodies contracts with Boston Widgets Inc. to buy five hundred widgets. Under the contract, Anderson asks Boston Widgets to ship them the first five hundred green widgets that come off the assembly line. Boston Widgets packs up those first five hundred widgets but, before they can ship them, the widgets get destroyed. Assuming that the destruction was nobody's fault, Boston Widget’s obligation is excused because the goods to be sold were identified specifically (the first five hundred green widgets that come off the assembly line). See U.C.C. 2- 509.

Where contracts for personal services are concerned and one of the parties to the contract either dies or becomes incapacitated, both parties are excused.

However, where impracticability is only temporary, the parties are not excused from performance. Rather, the promisor’s duty is temporarily suspended while the impracticability continues. Once the impracticability passes, the duty reattaches but only if performance would not increase the burden on either party or make the performance different from what was originally promised. For example:

1. Philip and Tom enter into a contract under which Tom agrees to build Philip a house and Philip agrees to pay Tom $1 million. The $1 million is the result of Tom’s calculation that it will cost $800,000 to build the house. Before beginning to build, Tom gets very sick. Tom’s doctors tell him that he will recover completely but it will take about six months. In this case, it is no longer practical for Tom to build the house. However, because the impracticability will pass, Tom is not excused from building the house. Rather, his duty to build the house is suspended until he feels better.
2. Philip and Tom enter into a contract under which Tom agrees to build Philip a house and Philip agrees to pay Tom $1 million. The $1 million is the result of Tom’s calculation that it will cost $800,000 to build the house. Before beginning to build, Tom gets very sick. Tom’s doctors tell him that he will recover completely but it will take about six months. By the time Tom recovers the cost of building materials has gone up so extensively that it would cost Tom $1.3 million to build the house. In this case, even though Tom’s illness was a temporary impracticability which only suspended Tom’s duty to perform on the contract, the duty will not reattach once Tom feels better because performance, given the increase in building costs will substantially increase the burden on Tom. See Autry v. Republic Productions, 30 Cal.2d 144 (1947).

As far as damages go, if either party has rendered part performance before impracticability prevents the completion of performance, the party that partly performed is entitled to recover in restitution for the value of that part performance.