Saturday, June 4, 2011

Contracts/Sales: Defenses to Enforcement


In contracts, having trouble distinguishing between impossibility, impractibility, and frustration of purpose, can you advise?


Before getting into the differences, let's discuss one important similarity among these ideas. Your analysis as to these issues should only begin once you've determined that a party to the contract is under an immediate duty to perform. If a party is under an immediate duty to perform, the duty to perform might be discharged by impossibility, impracticability, or frustration of purpose. To claim impossibility, impracticability, or frustration of purpose, you must first ensure that the nonoccurrence of the event that caused the impossibility, impracticability, or frustration of purpose was a basic assumption of the parties in making the contract, and that neither party has expressly or impliedly assumed the risk of the event occurring.

In regards to impossibility, contractual duties will be discharged if it has become impossible to perform them. Note that the impossibility must be objective (it's not enough that the duties could not be performed by a given individual, it has to be true that the duties could not be performed by anyone). The impossibility must arise after the contract has been entered into. If, in fact, the impossibility existed prior to the contract being entered into, then you would have a formation problem (most likely mutual or unilateral mistake), and you would analyze in that respect. If you do use impossibility within your analysis of a contracts question, note that if a contract is discharged because of impossibility, each party is excused from duties arising under the contract that are yet to be performed. There is, however, a problem if a party has already performed some duties prior to the impossibility. To resolve this problem, each party may sue for rescission and receive restitution.

With impracticability, it has not become impossible for a party to perform his/her duties under a contract, but instead the party to perform has encountered extreme and unreasonable difficulty and/or expenses. You would analyze impracticability in the same manner as impossibility, allowing those who have already partially performed to rescind the contract and receive restitution. Note that impracticability often comes up in UCC Sales questions when contingencies such as war, strike, embargo, or other unforeseen circumstances can excuse the seller's duty to perform. But also note that mere increases in cost are rarely sufficient to discharge a seller's duty to perform; this was a risk that the seller assumed.

Frustration of purpose exists if the purpose of the contract has become valueless due to some event not the fault of the party seeking discharge. Note the difference between frustration of purpose, and impossibility/impracticability. With the latter two, performance of the duties to the contract could not be performed (perhaps because the subject matter of the contract had been completely destroyed, or one of the parties had died), but here, although the contract could still be performed, contractual duties will be discharged if the purpose of the contract has been frustrated. You'll have to ensure that an act after formation of the contract has destroyed the purpose of the contract, neither parties could have reasonably foreseen the event that destroyed the purpose, and that the purpose of the contract was realized by both parties at the time of making the contract.

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