Impracticability (Excuse by Failure of Presupposed Conditions)

• Author: autor
• Pages: 153-173

153

Chapter 11. Impracticability (Excuse by Failure of Presupposed

Conditions)

11.1. Common Law. At common law, a party to a contract is excused from performing his or her

obligations if, “after a contract is made, a party's performance is made impracticable without his

fault by the occurrence of an event the non-occurrence of which was a basic assumption on

which the contract was made.” Restatement (Second) of Contracts § 261.

11.1.1. Initially, many courts imposed the strict standard of im possibility of performance

before excusing a party from its contractual obligations. In more recent years, courts have

shifted to the adoption and application of the standard of impracticability (rather than

impossibility) as set forth above in § 261 of the Restatement.

11.1.2. The UCC was a forerunner in the development of the shift from “impossibility” to

“impracticability.” The drafters sought to codify "the ever-shifting line, drawn by courts

hopefully responsive to commercial practices and mores, [under] which the community's

interest in having contracts enforced according to their terms is outweighed by the

commercial senselessness of requiring performance." Transatlantic Financing Corp. v.

United States, 363 F.2d 312, 315 (D.C. Cir. 1966).

11.1.3. Under the principle of freedom of contract, the parties may specifically agree to a

discharge of their obligations in the event of certain occurrences. These are typically

known as force m ajeure clauses, and the use of such clauses may preempt application of

the common law or the default rules set forth in the UCC.

11.1.4. For a history of the development of the doctrine of impracticability, see J. Wladis,

Impracticability as Risk Allocation: The Effect of Changed Circumstances upon Contract

Obligations for the Sale of Goods, 22 Ga. L. Rev. 503 (1988). For its development in an

international context, see M. Baker, "A Hard Rain's A-Gonna Fall" - Terrorism and

Excused Contractual Performance in a Post September 11th World, 17 Transnatl. Law. 1

2004).

11.1.5. Note that the consequence of excuse is that a party is not in breach. It may be

necessary after excuse to make some adjustment between the parties using principles of

reliance and restitution. See Restatement (Second) of Contracts § 272.

11.2. The UCC Scheme: § 2-615. Four sections in the UCC address changes in circumstances

after the formation of a contract for the sale of goods: § 2-613 (Casualty to Identified Goods),

§ 2-614 (Substituted Performance), § 2-615 (Excuse by Failure of Presupposed Conditions), and

§ 2-616 (Procedure on Notice Claiming Excuse). We’ll start our analysis with § 2-615.

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Problem 11-1.

(1) Which party is entitled to excuse under UCC § 2-615?

(2) From what aspect of performance is that party excused?

(3) After reading § 2-615(a), define the elements which must be established:

performance has been made _____________________

by either (1):

the occurrence of a __________________

the non-occurrence of which was a _____________________________ on which

the contract was made.

Or by (2)

Good faith compliance with a foreign or domestic _______________________,

even if it is later determined to be invalid.

11.2.1. Although UCC § 2-615 specifically refers to a seller whose performance has

become impracticable, most courts have stated that the doctrine of impracticability is

available to excuse buyers as well, if the buyer otherwise establishes the elements of § 2-

615. Lawrance v. Elmore Bean Warehouse, 702 P.2d 930 (Id. App. 1985). See also the

last sentence of Comment 9 -- “the reason of the present section may well apply and

entitle the buyer to the exemption.”

11.2.2. The governmental action excuse, which has been expanded from common law

under the UCC to include action by a foreign government, has been traditionally applied

by the courts. As noted in Comment 10, the seller’s “good faith belief in the validity of

the regulation is the test ... and the best evidence of his good faith is the general

commercial acceptance of the regulation.” In a case involving a contract dispute between

an American radio manufacturer and a Swedish company serving as its exclusive

distributor to Iran, the court excused the manufacturer from performing its obligations as

a result of the U.S. government's informal requirements prohibiting all sales to Iran of

goods. Harriscom Svenska, AB v Harris Corp., 3 F.3d 576 (2d Cir. 1993).

11.2.3. As noted in Comment 4 to § 2-615, the concepts of "failure of basic assumption"

and "impracticability" are fundamental to an understanding of subsection 2-615(a). Both

elements must be present before a seller is excused.