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Contracts • Excuse of Non-Performance
K#142
Legal Definition
Contractual duties are discharged if it is objectively impossible to perform. When it comes to new construction, if the building is destroyed during construction, the parties' duties are not discharged but most courts will excuse the contractor from meeting the original deadline. In the case of remodel or repair, the parties' duties would be discharged.
Plain English Explanation
It's best to discuss this card with a group of other cards, as they are similar but unique. The three often confused rules in contract law are: (1) impossibility, (2) impracticability, and (3) frustration of purpose.
Impossibility means exactly what it sounds like: it is objectively impossible for the parties to perform under the contract. The most common type of impossibility happens when something is destroyed and it is impossible for the party to un-destroy the thing in question. But another example would be when parties agree to something that is later made illegal. Since you cannot contract to do something illegal, then it is now impossible to perform the contract even if, at the time it was made, it was fine.
Impracticability means that it is possible to still perform, but the circumstances have changed and now cause an unreasonable burden on the party trying to avoid the contract. For example, if Bob hires Sam to dig him a pool in his backyard and, while digging the pool, Sam's shovel hits a metal UFO that unexpectedly crash landed there thousands of years ago, the cost to dig the pool would now substantially increase (after all, now Sam needs to dig up a UFO instead of just dig a hole in the ground). It would be extreme and unreasonable to force Sam to incur the costs of digging up a UFO since the contract never included the possibility of there being a UFO in Bob's backyard. As such, though it isn't impossible to perform on the contract, it is arguably impracticable, which would relieve Sam of his obligation to perform.
Frustration of Purpose means that the purpose for the contract no longer exists, which was the sole reason of the contract to begin with. For example, if you rented a hotel room next to Disneyland because you and your family were planning a trip, but then Disneyland is shut down due to the COVID-19 pandemic. The point wasn't to visit a hotel room, it was to visit Disneyland. However, unexpectedly, Disneyland has shut down which makes traveling to the hotel room pointless, even though it isn't impossible. Your purpose has been frustrated.
Impossibility means exactly what it sounds like: it is objectively impossible for the parties to perform under the contract. The most common type of impossibility happens when something is destroyed and it is impossible for the party to un-destroy the thing in question. But another example would be when parties agree to something that is later made illegal. Since you cannot contract to do something illegal, then it is now impossible to perform the contract even if, at the time it was made, it was fine.
Impracticability means that it is possible to still perform, but the circumstances have changed and now cause an unreasonable burden on the party trying to avoid the contract. For example, if Bob hires Sam to dig him a pool in his backyard and, while digging the pool, Sam's shovel hits a metal UFO that unexpectedly crash landed there thousands of years ago, the cost to dig the pool would now substantially increase (after all, now Sam needs to dig up a UFO instead of just dig a hole in the ground). It would be extreme and unreasonable to force Sam to incur the costs of digging up a UFO since the contract never included the possibility of there being a UFO in Bob's backyard. As such, though it isn't impossible to perform on the contract, it is arguably impracticable, which would relieve Sam of his obligation to perform.
Frustration of Purpose means that the purpose for the contract no longer exists, which was the sole reason of the contract to begin with. For example, if you rented a hotel room next to Disneyland because you and your family were planning a trip, but then Disneyland is shut down due to the COVID-19 pandemic. The point wasn't to visit a hotel room, it was to visit Disneyland. However, unexpectedly, Disneyland has shut down which makes traveling to the hotel room pointless, even though it isn't impossible. Your purpose has been frustrated.
Hypothetical
Hypo 1: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. It so-happens that his neighbor, Sam, has recently bought the exact car that Bob wants for his wife. Bob offers Sam $500,000 for his car. Sam accepts. Unexpectedly, a meteor flies into Earth's orbit and lands on Sam's car, exploding it to a million pieces. Result: It is now impossible for Sam to sell Bob his car, because his car is now a crater.
Hypo 2: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. Bob orders the Ferrari directly from the manufacturer in Italy. Right as Bob's custom, $500,000 Ferrari is rolling out of the manufacturing facility, a meteor flies into Earth's orbit and lands on Bob's car, exploding it into a million pieces. Result: This may seem like the same as Hypo 1, but remember -- for something to be impossible it must be objectively impossible. In Hypo 1, Sam is just a normal guy who so-happened to own a Ferrari. When his Ferrari got hit with a meteor, he no longer has the power to give Bob another one, so it is impossible. However, in this example, Bob contracted with the Ferrari manufacturer directly. Thus, even though it will be expensive to build him another one, it's not impossible. You may be able to argue that it is impracticable, but even that is a bit of a stretch since it's not that extreme to require a car manufacturer to manufacture another car.
Hypo 3: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. He contacts Ferrari and discusses his plan to create a special, birthday-themed Ferrari with his wife's face painted on the hood of the car. Ferrari offers to deliver it in a large bow to make it look even more like a gift. Unfortunately, before Ferrari can begin building the car, Bob's wife dies. Result: This is an example of frustration of purpose. The whole reason Bob and Ferrari were contracting was to create a surprise birthday gift for Bob's wife. Now that Bob's wife is dead, there is no longer a purpose to continue with the contract.
Hypo 2: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. Bob orders the Ferrari directly from the manufacturer in Italy. Right as Bob's custom, $500,000 Ferrari is rolling out of the manufacturing facility, a meteor flies into Earth's orbit and lands on Bob's car, exploding it into a million pieces. Result: This may seem like the same as Hypo 1, but remember -- for something to be impossible it must be objectively impossible. In Hypo 1, Sam is just a normal guy who so-happened to own a Ferrari. When his Ferrari got hit with a meteor, he no longer has the power to give Bob another one, so it is impossible. However, in this example, Bob contracted with the Ferrari manufacturer directly. Thus, even though it will be expensive to build him another one, it's not impossible. You may be able to argue that it is impracticable, but even that is a bit of a stretch since it's not that extreme to require a car manufacturer to manufacture another car.
Hypo 3: Bob wants to surprise his wife for her birthday with a super fancy, expensive, custom Ferrari. He contacts Ferrari and discusses his plan to create a special, birthday-themed Ferrari with his wife's face painted on the hood of the car. Ferrari offers to deliver it in a large bow to make it look even more like a gift. Unfortunately, before Ferrari can begin building the car, Bob's wife dies. Result: This is an example of frustration of purpose. The whole reason Bob and Ferrari were contracting was to create a surprise birthday gift for Bob's wife. Now that Bob's wife is dead, there is no longer a purpose to continue with the contract.
Visual Aids
Related Concepts
How do courts treat checks tendered as payment in full?
How does a novation compare to a delegation?
How does a subsequent law or regulation affect performance of the contract?
How does the death of a party affect performance of the contract?
How is performance affected when the subject matter of the contract is damaged or destroyed?
How may a party eliminate express conditions?
Under common law, is late performance a material breach?
Under common law, when is counter-performance excused?
Under common law, when may a breaching party recover in a divisible contract?
Under contract law, what is a modification?
What are conditions precedent?
What are conditions subsequent?
What are express conditions?
What are the consequences of impossibility or impracticability under the UCC?
What happens if a contract is divisible and a party performs one of the units of the contract?
What is an accord and satisfaction?
What is a novation?
What is excuse due to anticipatory repudiation?
What is excuse due to improper performance?
What is excuse due to insecurity about other party's performance?
What is excuse due to other party's non-performance?
What is frustration of purpose?
What is impracticability?
What is required to retract an anticipatory repudiation?
What is rescission?
What level of compliance is required to satisfy an express condition?
What options does the non-breaching party have in response to an anticipatory repudiation?
When is a contract divisible?
