CHAPTER 7 COMMERCIAL IMPRACTICABILITY IN MINERAL TRANSACTIONS
| Jurisdiction | United States |
(Mar 1985)
COMMERCIAL IMPRACTICABILITY IN MINERAL TRANSACTIONS
Robert A. Creamer
Paul K. Whitsitt
Keck, Mahin & Cate
Chicago, Illinois
I. Introduction.
The modern doctrine of "commercial impracticability" is an invention of the Uniform Commercial Code, which was adopted in the 1960s in most of the United States. A copy of the Code provision, Section 2-615, together with "Official Comments" by the drafters is attached as Appendix 1. Basically, the doctrine is one which provides an excuse from performance to an otherwise defaulting party to a contract for the sale of goods, such excuse either to be total or partial, depending upon the facts of the case. The promisor must prove the necessary facts to bring himself within the elements of the doctrine to be excused from the bargain.
II. Development of the Doctrine.
A. Common Law Impossibility.
Early English common law recognized no excuse for non-performance of a contract: the promisor either performed, or if performance became impossible, responded to the promisee in damages. This rule was first relaxed in 1863 when the Queen's Bench released a lessor from his obligation to rent a music hall which had been destroyed by fire prior to the time for performance. Taylor v. Caldwell, 122 Eng.Rep. 309 (Q.B. 1863). The Taylor court read an implied condition into the contract that the music hall continue to exist until the time for performance. Failure of the condition made performance impossible and excused both parties from fulfilling their contractual obligations.
Not long after, the same court introduced a related excuse, frustration of purpose, into contract law. In Krell v. Henry, 2 Q.B. 740 (1903), the promisor contracted to rent a room solely for the purpose of watching the coronation procession of Edward VII and was relieved of his duty to pay when the procession was subsequently cancelled. The court reasoned that the cancellation had frustrated the very purpose of the contract and rendered it a nullity.
[Page 7-2]
A majority of the American courts considering the issue have adhered until recently to the Taylor standard of impossibility. Under the majority reasoning, the claimed impossibility had to be objective (if any person could have performed, the promisor was bound) and the circumstances of the case extreme to excuse performance. Justice Holmes expressed the nearly universal attitude in Day v. United States, 245 U.S. 159, 161 (1917), when he commented that "one who makes a contract never can be absolutely certain that he will be able to perform it when the time comes, and the very essence of it is that he takes the risk within the limits of his undertaking."
In Mineral Park Land Co. v. Howard, 172 Cal. 289, 156 P. 458 (1916), the California court first excused performance on the basis of impracticability rather than impossibility. The defendant in Mineral Park had agreed to purchase all its requirements for gravel for the construction of a bridge from the plaintiff. When approximately half of the gravel on the plaintiff's land had been removed, the defendant began to purchase gravel elsewhere because the remaining gravel in plaintiff's pits was under water and would cost ten to twelve times the usual price to remove. In relieving the defendant of its duty to perform, the court explained:
'A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done in an excessive and unreasonable cost.' 1 Beach on Contracts § 216. We do not mean to intimate that the defendants could excuse themselves by showing the existence of conditions which would make the performance of their obligation more expensive than they had anticipated, or which would entail a loss upon them. But, where the difference in cost is so great as here, and has the effect, as found, of making performance impracticable, the situation is not different from that of a total absence of earth and gravel. [156 P. at 460.]
This more liberal standard of "impracticability" was adopted in the Restatement of Contracts (1932). Section 454 of the Restatement included "impracticability because of extreme and unreasonable difficulty, expense, injury or loss" in its definition of impossible contract performance. This "extreme and unreasonable" standard was adopted in theory by the courts in many states. See Annot., 84 A.L.R. 2d 12 (1962).1
[Page 7-3]
In practice, however, the Restatement doctrine of impracticability has borne a strong resemblance to common law impossibility. A leading California case, Lloyd v. Murphy, 25 Cal.2d 48, 153 P.2d 47 (1944), typifies the narrow reading given by the courts to the impracticability concept. In Lloyd, Justice Traynor refused to excuse performance on the part of a defendant who had leased a car showroom for the express purpose of selling new cars, even though the government had ordered that the sale of new cars be discontinued. "Laws or other governmental acts that make performance unprofitable or more difficult or expensive do not excuse the duty to perform a contractual obligation." 153 P.2d at 51. See also Leonard v. Auto Car Sales and Service Co., 392 Ill. 182, 64 N.E.2d 477 (1945); 6 Williston, Contracts § 1963 (rev. ed. 1938).
A more recent case decided under the Restatement may represent a slight relaxation of the "extreme and unreasonable" standard. In Northern Corporation v. Chugach Electric Association, 518 P.2d 76 (Alaska 1974), the plaintiff had contracted to quarry rock and ferry it across a frozen lake to a dam. For two winters the ice did not freeze sufficiently to support heavy truck traffic, and after several lives were lost in a final unsuccessful attempt, the plaintiff claimed impracticability. The court agreed and awarded the plaintiff compensation for the fruitless attempts. The Chugach court explained the applicable law as follows:
Under this doctrine, a party is discharged from his contract obligations, even if it is technically possible to perform them, if the costs of performance would be so disproportionate to that reasonably contemplated by the parties as to make the contract totally impractical in a commercial sense. [cites Mineral Park, 518 P.2d at 81.]
The court concluded that the ice haul method was "not commercially feasible within the financial parameters of the contract", 518 P.2d at 82, and that Northern was not required to seek an alternative and more expensive route. Considering that the alternative method of performing available to the plaintiff would have been less than twice as expensive as the original...
To continue reading
Request your trial