Under Michigan law, economic non-profitability is not the equivalent to impossibility of performance. Subsequent events which in the nature of things do not render performance impossible, but only render it more difficult, burdensome, or expensive, will not operate to relieve a party of its contractual obligations.
Defendant corporations, due to substantial losses brought about by a dramatic downturn in the market, sold their farm equipment division but did not terminate plaintiff dealer's contract under the contract's terms. The dealer sued the defendants for breach of its contract. The defendants interposed the defense of impossibility of performance, which the court allowed to go to jury. The jury returned a verdict of no cause of action on the contract.
Does non-profitability of business constitute impracticability of performance that justifies unilateral termination of a contract?
The court reversed the judgment for defendants and remanded for a new trial on the issue of plaintiff's damages because the district court erred when it instructed the jury on the defense of impracticability of performance. The court found that, under state law, the non-profitability of defendants' business was not equivalent to impracticability of performance and that defendants' decision to go out of business did not excuse its unilateral termination of its dealership agreement with plaintiff. The court found that defendants had other alternatives and that their choice gave them a windfall at the expense of plaintiff. The court held that the defense of frustration of purpose did not apply because the contract's purpose was to establish the dealership and that the other defenses were merely methods to circumvent the termination clause. The court affirmed the deficiency judgment because plaintiff failed to raise his claim under the Michigan Farm and Utility Equipment Franchise Act, Mich. Comp. Laws Ann. § 445.1451 et seq., at the trial level.