What is Commercial Impracticability?
How do you legally define it?
What are the essential elements you should know!
In this article, we will break down the legal definition of Commercial Impracticability so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
Let’s dig into commercial contracts and contract law!
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What Is Commercial Impracticability
Commercial impracticability means that a party performance under the contract is “impractical” and cannot be executed either due to impossibility or significant difficulty.
Generally, impracticability in commercial contracts is caused by an unforeseen and unpredictable event as opposed to a party’s own act, conduct, or omission.
The argument of commercial impracticability doctrine is generally used as a legal defense by a defendant in a civil lawsuit to explain or justify why it did not execute its obligations as per the terms of the contract.
When confronted with a lawsuit where the plaintiff is seeking damages for breach of contract and the defendant is invoking the legal theory of impracticability, the judge will evaluate the circumstances of the case and decide on the matter.
It’s important to note in most jurisdictions, the law and courts will defend and enforce contracts entered into by businesses and individuals.
It’s rare that a party is excused from its legal obligations under a contract.
As such, the legal doctrine of commercial impracticability is a legal means to excuse a party from executing its contractual obligations but it’s not going to be easy to succeed in court.
The evidence and circumstances must demonstrate that the defendant did not cause an event resulting in the impracticability of the obligations or negligently entered into a contract.
Commercial Impracticability Definition
Commercial impracticability is defined as the occurrence of an event contracting parties could not have reasonably foreseen at the moment of the contract formation rendering a party’s performance of its obligations (or both) impractical or impossible.
The issue of impracticability requires a more subjective evaluation by the court.
A judge or court will need to decide whether a party was truly and in good faith unable to execute its contractual obligations or is the party actually in breach of contract.
It’s important to note that a party cannot escape its contractual obligations if, in hindsight, it finds the contract terms unfavorable or does not realize the profit it was expecting.
For a court to legally execuse a party to perform its legal obligations, there must be a serious and important reason why it is unable to perform its obligations.
For example, if you hire a specific musician or artist for a major event and that specific person dies or gets into an accident, the courts may agree that due to the unforeseen event, the artist cannot execute its contractual obligations.
However, if a company entered into a contract thinking it will make a profit of 20% but ended up losing 10%, it cannot invoke the argument of commercial impracticability to say that due to the cost of labor or material going up, it was not able to realize its originally intended profits.
Commercial Impracticability Legal Elements
To successfully prove impracticability in court as a legal defense against a lawsuit for breach of contract or contractual nonexuection, you will generally need to establish the following elements:
- An unforeseen event occurred
- Due to the unforeseen event, you are unable to perform your contractual obligations
- The unforeseen event could not have been reasonably predicted by the parties
- The defendant’s actions or omissions did not contribute to the occurrence of the event
It’s important that you speak to an attorney or legal professional to better understand the actual requirements in your local jurisdiction.
The facts and circumstances of the case are crucial for the court to assess whether the defendant had the ability to perform the contract but could no longer perform due to the unforeseen event or whether the defendant is looking for a way to escape its legal obligations.
If the court finds that the defendant’s performance is impractical or impossible, it can void the contract.
Impracticability In Sale of Goods Contract (UCC)
Let’s look at the notion of commercial impracticability under the Uniform Commercial Code (UCC).
Article 2 of UCC deals with the sale of goods where “goods” can be defined as anything movable in nature.
The UCC provides for certain default provisions that apply to the sale of goods contracts in case the parties’ contract is silent or does not provide for a crucial element.
Section 2-216 UCC refers to the “commercial impracticability” concept and is titled “Excuse by Failure of Presupposed Conditions”.
UCC states that the delay or non-delivery in whole or in part by a seller is not a breach under the contract if:
- The seller’s performance has been made impractical by the occurrence of a contingency the non-occurrence was a basic assumption on which the contract was made
- The seller, in good faith, was trying to comply with foreign or domestic governmental regulations or order
To successfully invoke UCC 2-216, a party will need to demonstrate that:
- A contingency has occurred making the strict performance under the contract impracticable
- The nonoccurrence of the contingency was a basic assumption on which the contract was formed
- The seller did not assume the risk of the contingency
- The seller seasonably notified the buyer that there may a delay or nondelivery of its obligations
Impracticability In Service Contracts
In common law, the doctrine of “commercial impossibility” may be invoked by a party who was unable to execute its contractual obligations.
The source of the contractual impracticability stems from the Restatement of Contracts (Second) under Sections 261 and 265 and requires the defendant establish:
- The occurrence of an event resulting in the impossibility of performance or impracticability of performance
- The event must have been unexpected and not foreseeable
- The defendant did not intend to assume the risk of such event
- The performance of the contract will be highly difficult or impossible
When an event occurs rendering a party’s performance impractical or impossible, the party has a duty to notify the other party of the situation.
In some cases, the event results in the destruction of the entire purpose of the agreement (frustration of purpose) and in some other cases the defendant may partially execute its contractual obligations.
Commercial Impracticability Cases
In the following cases, a contracting party may invoke the legal notion of commercial impracticability to explain why its contractual obligations were not performed:
- Due to a natural disaster making it impossible
- Due to the weather
- The death of a key stakeholder
- The disability of a key personnel
- Due to the pandemic like COVID-19
For example, Mary enters into a contract with an entertainment company to have a specific comedian attend a charity event.
Following the execution of the contract, the comedian is stuck in transit due to the breakout of a pandemic or gets into a car accident and becomes disabled.
In this case, the entertainment company will invoke commercial impossibility to indicate that it cannot perform its obligations under the contract.
Force Majeure Clause
A force majeure clause is a contractual provision allowing the parties to define circumstances or events where they may be excused from performing their obligations or even be allowed to terminate their contract.
For example, a force majeure provision may state that in the event of an act of God, war, civil resurrection, or pandemic, a party may provide a notice to the other to terminate the contract.
When the parties actually agree to a force majeure clause in their contract, they mutually agree on what would happen if an uncontrollable or unforeseeable event were to happen.
However, even when the contract does not have an express provision in this regard, the notions of impossibility of performance, commercial impracticability of performance, or frustration of purpose may be used to be excused in performing the contractual obligations.
The notion of commercial impracticability may vary from one state to another state but generally consists of a party being excused of performance when the performance is made impractical due to an unforeseen event and without fault of his own.
Economic losses or financial hardships are not considered as valid arguments to be excused from a contract.
However, if the performance of the contract, due to unforeseeable circumstances, becomes prohibitively expensive or unbearably difficult, then the commercial “impracticability” argument may be invoked.
Commercially Impractical: Takeaways
So what is the legal definition of Commercial Impracticability?
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