§ 12.01 Supervening Impossibility and Impracticability of Performance

If, after a contract is formed, circumstances arise which make a party's performance impossible or impracticable, his duty to render that performance is discharged. In order to prove impracticability:

• an event must have occurred that makes performance, or performance in the contemplated sense, impossible or impracticable;
• the party seeking relief must not have been at fault in causing the event to occur;
• non-occurrence of the event must have been a basic assumption upon which the contract was made; and
• the party seeking relief must not have assumed the risk of the event occurring. [Restatement § 261]

Applying the same criteria, UCC § 2-615 provides that a seller's delayed delivery or non-delivery of goods based on impracticability is not a breach. The proposed revision expands the availability of the impracticability excuse to "performance" and "non-performance" of any and all sellers' contractual duties.

Events that may make performance of the contract impossible include:

• death or disability of a person indispensable to performance of the contract
• destruction of the subject matter of the contract or other thing necessary for the performance of the contract, provided the destruction is not the fault of the party asserting impossibility
• failure of a specific thing necessary for performance to come into existence
• supervening governmental action that makes performance of the contract illegal
• where performance would subject the party to potential harm
• shortages or significant price increases in materials due to embargo or war
• other circumstances that would involve "extreme or unreasonable difficulty, expenses, injury or loss." [Restatement § 261, comment d]

Increased cost alone does not excuse performance but an alternative performance that requires an unreasonable expenditure of resources may make performance of the contract impracticable.

§ 12.02 Partial Impracticability

If the circumstances giving rise to the impracticability affect only part of the performance, and the promisor can render substantial performance of his obligations, he must do so, as well as make reasonable substitute performance if available. Performance will be discharged only if the partial impracticability makes the remaining performance substantially more burdensome.

In goods contracts, if the impracticability affects only a part of the seller's capacity to perform, the seller must allocate production and deliveries among its customers. [UCC § 2-615(b)]

§ 12.03 Supervening Frustration of Purpose

If, after the contract is formed, circumstances arise which substantially frustrate a party's purpose in entering into the contract, the party's remaining duties are discharged, provided:

1)  the party seeking discharge was not at fault;

2)  the nonoccurrence of such event was a basic assumption on which the contract was made; and

3)  the language or the circumstances do not prohibit excuse based on frustration of purpose. [Restatement § 265]

This principle does relieve a party for mere "economic" or "commercial" frustration, where all that is frustrated is the party's ability to make a profit but not the actual purpose of the contract.

§ 12.04 Existing Impracticability and Frustration of Purpose

If the impracticability or frustration of purpose exists at the time the contract was made, no duty to perform arises where:

1)  the party raising the excuse, without fault, had no reason to know of the facts giving rise to the impracticability or frustration; and

2)  the non-existence of such facts is a basic assumption on which the contract was made. [Restatement § 266]

§ 12.05 Temporary Impracticability and Frustration

Where a party is unable to perform due to a temporary impracticability, e.g., illness, the other party may be able to suspend performance of the contract, and if there is a reasonable probability that substantial performance will not occur, cancel the contract. When the temporary impracticability ceases, if the delay will make the performance substantially more burdensome, the obligation may be discharged.