The general rule as to existing impracticability is that where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary. This statement of the general rule encompasses the exceptions to relief: (1) the impracticability must not have been caused by the promisor (fault), (2) the promisor must have had no reason to know of the impracticability (foreseeability); and (3) the language or circumstances may indicate that the promisor not be relieved because of the impracticability (assumption of the risk).
Appellant public utility had a contract to purchase gas from appellee oil company from production under certain leased gas fields. Appellee breached the contract on the first day and was never able to deliver the minimum amount of gas called for by the contract thereafter. It defended its breach under the doctrine of impossibility of performance because the gas field was exhausted. The trial court relieved appellee of liability for breach of the contract under the doctrine of impossibility of performance. The appellate court reversed the judgment in favor of appellee and remanded with directions to enter judgment for appellant in an amount determined by the court.
Could appellee oil company be relieved of liability for breach of contract for the sale and purchase of natural gas under the doctrine of impossibility of performance?
Appellee oil company assumed the risk that reserves might be insufficient as demonstrated by (1) the language of the contract making purchase and availability of gas to the public utility the essence of the agreement, (2) appellee's foreseeability that the reserves might not be sufficient, and (3) appellee's expertise and superior knowledge as to the possibility of inadequate reserves. If the producer wished to be relieved of liability where its reserves were unknown, appropriate language could be inserted in the contract, but in the instant case, it was not.