Also known as: impracticable performance · performance impracticability · commercial impracticability · impracticability
Written by attorneys — see sources below.
A doctrine under which a party's contractual duty is discharged when performance becomes impracticable without the party's fault because of a supervening event whose nonoccurrence was a basic assumption of the contract. The doctrine applies only to discharge a duty to render performance and does not affect claims for breach that have already arisen. Temporary impracticability suspends rather than discharges the duty unless resumption would be materially more burdensome.
Royal Lines agreed to truck components daily through a single mountain pass for five years. An avalanche triggered an indefinite state closure with no feasible reconstruction. Alternate routes tripled fuel costs and made continued performance unprofitable though physically possible. Royal ceased service after forty-five days and defended the resulting breach claim by asserting discharge.
Apex Mining agreed to supply ore under a fixed-price, five-year contract. New federal regulations unexpectedly banned the only economical extraction method. Compliance required an entirely different and far costlier process that would have altered the essential nature of performance. Apex invoked impracticability to excuse further deliveries.
Imperial Motors contracted to supply engines on a fixed schedule. A fire closed its main plant for six months. Once rebuilt, Imperial could resume at the original cost and volume. The buyer demanded damages for the interruption, but Imperial asserted that the duty was merely suspended.
Ines Ibarra agreed to deliver rare timber by a date certain. She repudiated the contract before any performance was due. A subsequent government ban on harvesting the species would have made timely delivery impossible even if she had not repudiated. The buyer sought damages for total breach, but Ibarra claimed the damages duty was discharged.
Icarus Aviation promised to maintain a runway for the benefit of a neighboring cargo operator under a third-party-beneficiary clause. New federal regulations later prohibited the required maintenance work. The cargo operator sued for breach, but Icarus asserted that the beneficiary's rights were discharged to the same extent as the underlying duty.
Aluminum Company of America contracted to supply aluminum at a fixed price indexed to a particular production-cost formula. Unforeseen regulatory and market changes caused production costs to rise more than a thousandfold. ALCOA sought relief from the fixed-price obligation, claiming the extreme increase rendered performance commercially impracticable.
In 1966 Essex Group, Inc., a manufacturer of electrical wire products, decided to expand its aluminum wire production and began negotiations with Aluminum Company of America (ALCOA) for a long-term supply of aluminum. By December 26, 1967, the parties entered into the Molten Metal Agreement under which Essex would supply alumina to ALCOA, which would smelt it into molten aluminum at its Warrick, Indiana facility for Essex to pick up. The agreement was to run until the end of 1983, with Essex having an option to extend it to 1988. Essex also entered into a separate Alumina Purchase Agreement with Alcoa of Australia Proprietary Ltd. for the supply of alumina. The price under the Molten Metal Agreement was calculated using a formula with three components. A demand charge was indexed to the Engineering News Record Construction Cost Index. A non-labor production cost component was indexed to the Wholesale Price Index-Industrial Commodities (WPI-IC). A labor production cost component was indexed to ALCOA's average hourly labor costs at Warrick. The initial price was fifteen cents per pound, subject to an overall cap at sixty-five percent of a specified market price for aluminum. ALCOA consulted economist Alan Greenspan in developing the indexing system, and both parties examined the historical performance of the indices before agreeing to them. The parties also executed a Side Letter Agreement addressing concerns under the Robinson-Patman Act, providing that if the agreement were construed as a sale of goods, either party could terminate it. From 1968 through the early 1970s, the price formula produced returns to ALCOA within the expected range of one to seven cents per pound net. Beginning in 1973, following actions by OPEC to increase oil prices and unanticipated pollution control costs, ALCOA's electricity costs at Warrick rose much more rapidly than the WPI-IC. As a result, ALCOA began incurring substantial out-of-pocket losses on the contract, projected to exceed sixty million dollars over the remaining term if unchanged. In June 1979, ALCOA notified Essex that it would reduce deliveries by fifteen percent, and Essex disputed ALCOA's authority to do so under the contract terms. On July 21, 1975, representatives of ALCOA and Essex, including Krome George and Paul O'Malley, met and discussed possible revision of the pricing formula, but the parties dispute whether an oral agreement to modify the contract was reached. In 1977 and 1978, electrical generating plant failures and a coal strike caused interruptions in ALCOA's smelting operations, leading to reduced deliveries to Essex that ALCOA attributed to causes beyond its control. ALCOA filed this action in the United States District Court for the Western District of Pennsylvania seeking reformation of the contract, a declaratory judgment regarding an alleged oral modification and termination rights, while Essex counterclaimed for damages and specific enforcement of the original delivery obligations. The case proceeded to a non-jury trial on liability issues, during which evidence was presented including tables showing the divergence between the WPI-IC and ALCOA's actual non-labor costs, testimony from company officials, and records of contract negotiations and performance. Jurisdiction is based on diversity of citizenship with the amount in controversy exceeding the jurisdictional threshold, and the parties agreed that Indiana law governs the contract.
The party must show that a supervening event made performance impracticable without its fault, that the nonoccurrence of the event was a basic assumption of the contract, and that the language or circumstances do not indicate a contrary allocation of risk.
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…method of performance, compare Annot., 84 A.L.R.2d 12, 19 (1962), there is nothing necessarily inconsistent in claiming commercial impracticability for the method of performance actually adopted; the concept of impracticability assumes performance was physically possible. Moreover, a rule making nonperformance a condition precedent to…
…however, a willingness by Transatlantic to assume abnormal risks, and this fact should legitimately cause us to judge the impracticability of performance
…be regarded as a center around which the parties intend the variation to occur.” : U.C.C. § 2-208(1) defines “course of performance” as those “repeated occasions for
…the contract were excused or suspended by virtue of either the force majeure clause or (4) the doctrines of frustration or impracticability
…of a contract for the calendar year 1973 and raised several defenses: the statute of frauds, modification of the oral contract, commercial impracticability
Temporary impracticability suspends the duty while the condition exists. The duty is discharged only if resumption after the condition ends would be materially more burdensome than originally contemplated.
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A party's duty to pay damages for total breach by repudiation is discharged if it later appears that the repudiated duty would itself have been discharged by impracticability before any breach by nonperformance.
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If a contract ceases to be binding because of impracticability, the beneficiary's rights are discharged or modified to the same extent.
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Substantial cost increases, even those exceeding fifty percent, are ordinarily insufficient. The increase must be so extreme that it alters the essential nature of the performance rather than merely making it more expensive.
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