Impossibility, impracticability, and frustration

The Supervening Event: Ability, Purpose, and the Exact Excuse

After formation, a party may be discharged from a remaining contractual duty when an unforeseen supervening event makes performance impossible or impracticable, or when it substantially destroys the contract’s principal purpose. The doctrines ask different questions: impossibility or impracticability focuses on whether performance can still be rendered without extraordinary difficulty or expense; frustration of purpose focuses on whether performance, though still possible, has lost the value that made the bargain worthwhile.

For common-law impossibility or impracticability, establish all five requirements:

1. A supervening event occurred after formation.
2. The event’s nonoccurrence was a basic assumption of the contract.
3. The event makes performance impossible or impracticable. Impossibility is literal inability, such as destruction of the specific subject matter, death or incapacity of a person whose personal performance was required, or a supervening legal prohibition. Modern impracticability also covers extreme and unreasonable difficulty or expense, not merely a less profitable bargain.
4. The party seeking excuse was not at fault. A party cannot create the obstacle, materially contribute to it, or deliberately assume the risk and then invoke the doctrine.
5. The contract did not allocate the risk of the event to that party. An express term, the nature of the undertaking, or the circumstances may place the risk on the party seeking excuse.

The doctrine is not a general escape from a bad bargain. Ordinary price increases, reduced profits, inconvenience, poor planning, or the loss of a preferred supplier ordinarily do not establish impracticability. A personal-service contract may be discharged by the performer’s death or serious illness, but not when the contract permits a substitute and a substitute remains available.

Frustration of purpose uses the same basic-assumption, supervening-event, no-fault, and risk-allocation inquiries, but its distinct requirement is that the event substantially frustrates the party’s principal purpose. That purpose must generally have been known or reasonably apparent to the other party when the contract was made. Performance remains possible; it has simply lost nearly all of the value the promisor sought. Mere disappointment, reduced profitability, or a less advantageous use is insufficient.

When applying the common-law doctrines, proceed in this order:

1. Identify the performance that has become difficult and the event causing the difficulty.
2. Ask whether the event occurred after formation and whether its nonoccurrence was a basic assumption.
3. Decide whether the problem is inability to perform or destruction of the bargain’s principal purpose.
4. Check fault, risk allocation, and any force majeure term before applying a default doctrine.
5. Limit the excuse to the affected performance and the period of the obstacle.

The consequence is usually discharge of the remaining affected duty, not damages for failing to perform it. If only part of a divisible or quantified obligation is affected, the unaffected part remains due. If performance is temporarily impossible, the duty is ordinarily suspended and resumes when performance becomes possible, unless the delay destroys the contract’s purpose or makes a required time of performance effectively essential. If one party has conferred a benefit before discharge, restitution may be available to prevent the other party’s unjust enrichment. Because this STARRED chapter is closed-book, commit these five requirements and the partial-and-temporary consequences to memory.

The Contract’s Own Allocation: Force Majeure Without Overreading

A force majeure clause is applied first as a matter of contract interpretation. It may expand, narrow, or otherwise allocate the risk differently from the default impossibility and impracticability doctrines. The question is not whether the event feels extraordinary; it is whether the clause covers that event and whether its conditions have been satisfied.

Read the clause for four points:

1. Covered event. Named events such as fire, flood, war, embargo, epidemic, strike, or governmental order are stronger grounds than a general reference to causes beyond control. A catchall following specific events may be limited to events of the same general kind rather than every business difficulty.
2. Required causal effect. “Prevents” performance is narrower than “delays,” “hinders,” or “interferes with” performance. If an alternate method remains available, an event may hinder delivery without preventing it.
3. Contractual conditions. The clause may require prompt or seasonable notice, mitigation, use of alternate sources, a particular allocation method, or proof of the event. Failure to satisfy an express condition may forfeit the clause’s protection.
4. Contractual consequence. The clause may excuse performance, suspend it, extend the delivery date, permit cancellation, or excuse only damages. Do not convert a temporary extension into permanent discharge.

The event must still causally produce the covered delay or nonperformance. A seller cannot invoke “government action” when the actual cause was its own failure to obtain a license, and a party ordinarily cannot rely on a force majeure clause for a self-created condition. Similarly, a clause covering a shortage may allocate the risk of shortage, but a clause covering only natural disasters does not automatically cover a market price spike.

If the clause covers the event, apply the clause’s limits rather than replacing it with a broader common-law rule. If the clause is silent or does not cover the event, return to the applicable default doctrine. A clause requiring performance despite a specified event controls even if common law might otherwise have supplied an excuse.

The Seller’s Commercial Impracticability: UCC Article 2’s Narrower Route

Under UCC § 2-615, a seller’s delay or nondelivery in whole or in part is not a breach when performance has become impracticable because of:

• the occurrence of a contingency whose nonoccurrence was a basic assumption of the contract; or
• the seller’s good-faith compliance with a domestic or foreign governmental regulation or order, whether the regulation or order existed when the contract was made or arose later.

The seller must also comply with § 2-615’s notice and allocation requirements. The seller must notify the buyer seasonably that there will be delay or nondelivery. When the seller has only a limited quantity available for several customers, the seller must allocate production and deliveries among customers in a fair and reasonable manner and notify the buyer of the estimated quantity available.

Section 2-615 is not a license for a seller to stop performing whenever performance becomes expensive. A normal market fluctuation, ordinary shortage, loss of a favorable source, insolvency, or a substantial but manageable cost increase generally does not suffice. A severe shortage caused by an extraordinary contingency-such as an embargo, war, crop failure, or comparable governmental restriction-may establish commercial impracticability. The contract’s language and trade context may also show that the seller assumed the risk.

The excuse is measured to the problem. If the contingency prevents 40 percent of the promised supply but leaves 60 percent available, the seller may be excused as to the unavailable portion while remaining obligated to perform the available portion, subject to fair allocation among customers. The seller is not automatically entitled to give the entire available supply to its most profitable customer or its earliest customer. A temporary disruption generally excuses only the affected period; if the delay makes a time-sensitive delivery worthless, the consequences may be broader.

Two UCC provisions address near misses rather than supplying a blanket excuse. Under UCC § 2-613, when identified goods suffer a casualty without either party’s fault before the risk of loss passes to the buyer, a total loss avoids the contract. For a partial loss or deterioration, the buyer may treat the contract as avoided or accept the goods with a due allowance from the price. If the risk of loss has already passed, § 2-613 is not the applicable protection.

Under UCC § 2-614, when the agreed manner of delivery becomes impracticable without either party’s fault but a commercially reasonable substitute manner is available, the seller must tender the substitute and the buyer must accept it. A reasonable substitute payment method is likewise required when the agreed payment method becomes unavailable. Thus, a seller cannot claim nondelivery when the Code requires a commercially reasonable substitute performance.

Section 2-615 is written for the seller’s delay or nondelivery; it does not excuse a buyer’s inability to pay merely because financing became difficult. If a buyer’s known principal purpose in purchasing goods is substantially destroyed, common-law frustration principles may supplement Article 2 under UCC § 1-103(b), unless displaced by the Code or the contract. The buyer must still prove frustration, not merely a disappointing resale market or reduced profit.

A force majeure clause in a sales contract operates alongside § 2-615. The clause may define a covered contingency more broadly or more narrowly, specify notice, and determine whether the result is delay, partial allocation, or discharge. If the clause covers the event, apply its wording; if it does not, apply § 2-615’s requirements.

The Screen-Test Distinctions: One Item and the Mistakes That Cost Points

GrainCo contracted to sell Baker 10,000 pounds of wheat for delivery on June 1. After formation, a government embargo made 80 percent of GrainCo’s ordinary wheat supply unavailable. GrainCo could obtain 2,000 pounds from another source and had several customers with similar contracts.

The contract stated: “Seller shall not be liable for delay or nondelivery caused by war, embargo, or governmental action, provided that Seller gives seasonable notice.” GrainCo seasonably notified Baker of the embargo, offered Baker its fair allocated share of the 2,000 pounds, and declined to promise the full 10,000 pounds.

Recurring errors:

• Treating a rise in the wheat price as impracticability even though the fact shows only ordinary market difficulty.
• Calling performance impossible when the real issue is that a known purpose has been destroyed while performance remains possible.
• Ignoring that “prevents delivery” and “delays delivery” create different force majeure triggers.
• Giving a seller a complete excuse even though 60 percent of the supply remains and must be fairly allocated.
• Applying UCC § 2-615 to a buyer’s inability to pay without analyzing whether common-law frustration supplies a separate, non-Code excuse.

Three Short Runs: Questions That Test the Three Paths

High-Yield Points - ⚡ Biggest Takeaways

Impossibility concerns ability to perform; frustration concerns the lost value of a known principal purpose. A force majeure clause controls only when its event, causal language, conditions, and consequence are satisfied. Under UCC § 2-615, a seller may receive partial excuse, but must give notice and allocate limited supply fairly.