7.5 Impossibility, Impracticability & Frustration of Purpose

Impossibility, Impracticability & Frustration of Purpose

The Problem of Supervening Events: At early common law, contractual promises were strictly enforced as absolute undertakings (Paradine v. Jane (1647)); if a party promised to perform, unexpected hardships, fires, or plagues did not excuse breach. Modern contract law recognizes that contracts are founded upon unstated baseline assumptions. When unforeseen external events radically alter the foundation of the bargain without the fault of either party, equity and the Restatement (Second) of Contracts provide three related doctrines of excuse: impossibility, impracticability, and frustration of purpose.

I. The Three Changed Circumstances Doctrines of Excuse

To successfully assert an excuse based on changed circumstances, the claiming party must establish that: (1) a supervening event occurred after contract formation; (2) the non-occurrence of that event was a basic assumption on which the contract was made; (3) the event occurred without the fault of the claiming party; and (4) the claiming party did not assume the risk of the event by agreement or custom.

                         ┌──────────────────────────────────────┐
                         │   Changed Circumstances Doctrines    │
                         └──────────────────┬───────────────────┘
                                            │
         ┌──────────────────────────────────┼──────────────────────────────────┐
         ▼                                  ▼                                  ▼
  [Objective Impossibility]        [Commercial Impracticability]      [Frustration of Purpose]
- Restatement § 261              - UCC § 2-615 / Restatement § 261   - Restatement § 265
- "The thing cannot be done"     - Extreme & unreasonable difficulty - "Performance is possible,
- Death of essential person        or catastrophic expense             but the point is gone"
- Destruction of subject matter  - Shortage from war / embargo       - Krell v. Henry coronation
- Supervening illegality         - Market price shifts NEVER excuse  - Value virtually destroyed

1. Objective Impossibility (Restatement (Second) of Contracts § 261)

• The Golden Rule: The standard is objective ("the thing cannot be done by anyone"), not subjective ("I personally cannot do it due to financial inability or illness").
• The Three Recognized Common Law Categories:
  1. Death or Incapacity of an Essential Person: In a contract for personal services where the identity, skill, or artistic talent of a specific individual is indispensable to the performance (e.g., a portrait painter, an elite surgeon, a named celebrity singer), the death or disabling illness of that person discharges the contract.
  2. Destruction or Deterioration of Subject Matter (Taylor v. Caldwell): Where the continued existence of a specific thing or means of performance is necessary for performance, its accidental destruction discharges the contract. In Taylor v. Caldwell (3 B. & S. 826 (1863)), the accidental burning of the Surrey Music Hall discharged the hall owner from liability to a concert promoter.
  3. Supervening Illegality or Governmental Prohibition: If a domestic statute, executive decree, or judicial injunction enacts a legal ban that makes performance illegal after formation, the duty of performance is discharged.
• Temporary Impossibility: If the impossibility is temporary (e.g., a temporary embargo or military call-up), the duty of performance is merely suspended; it is discharged only if performance after the cessation of the impossibility would be substantially more burdensome.

2. Commercial Impracticability (UCC § 2-615 & Restatement § 261)

Modern commercial law recognizes that literal physical impossibility is too harsh a standard. Under UCC § 2-615 and Restatement (Second) of Contracts § 261, performance is excused by commercial impracticability if performance can only be accomplished with extreme, unreasonable difficulty, expense, or injury.

[!CAUTION] The Price Spike Trap on the FYLSE: Mere market price increases, cost fluctuations, or normal inflationary pressures NEVER excuse performance under commercial impracticability.

Commercial sellers are in the business of assuming market risk. A 50%, 100%, or even 200% spike in the price of raw materials (such as lumber, oil, or steel) is treated as a foreseeable risk allocated to the seller. Impracticability requires a catastrophic, unforeseen event (e.g., a war closing an international canal, a crop plague destroying an entire region's harvest, an unannounced trade embargo cut-off) that destroys the contemplated supply source.

• UCC § 2-615(b) Proration Requirement: If an unforeseen contingency affects only a part of a seller's capacity to deliver, the seller cannot simply fulfill orders for favored customers and repudiate the rest. The seller must allocate production and deliveries among customers in a manner that is fair and reasonable, and seasonably notify buyers of the estimated quota.

3. Frustration of Purpose (Krell v. Henry & Restatement § 265)

Under the doctrine of frustration of purpose, physical and legal performance remains completely possible, but an unexpected supervening event has virtually destroyed the entire value or mutually understood point of the contract for one of the parties.

• Origin: Krell v. Henry ([1903] 2 K.B. 740). The defendant rented an apartment flat for two days solely to view the coronation procession of King Edward VII. The king fell critically ill, and the coronation was canceled. The flat was physically available, and the defendant was financially able to pay. The court held that the defendant was discharged because the viewing of the procession was the mutually understood foundation and sole purpose of the contract.
• Elements under Restatement § 265:
  1. The supervening event virtually completely destroys the principal purpose of the contract;
  2. The non-occurrence of the event was a basic assumption of both parties at formation; and
  3. The frustration is near total (a mere reduction in profitability is insufficient).