Don't Bet the Business

When a contract is formed, unforeseen events may render it impossible to perform, thereby excusing performance. Legally speaking, what does this mean?

The impossibility doctrine, under the proper circumstances, will excuse a promisor’s contractual performance where the facts show that his or her promise has become objectively impossible to complete. 

There are two types of impossibility in Michigan—original impossibility and supervening impossibility. The former is impossibility of performance existing when the contract was entered into, so that the contract was to do something, or to supply something, which from the outset was not possible accomplish. Supervening impossibility occurs when circumstances develop after the contract is formed which render agreed upon performance impossible. 

The “impossibility doctrine” is, in fact, a misnomer as the law does not require complete impossibility to excuse contractual performance. Rather, the law requires that there is a showing of impracticability of performance because of extreme and unreasonable difficulty, expense, injury or potential loss. 

For impossibility to exists a party’s performance must be made impracticable without the promisor’s fault. Rather, the impracticability must result from an event or circumstance the non-occurrence of which was a basic assumption on which the contract was made. 

The corollary to the promisee is equally true. Where impossibility or impracticability is shown, the promisee cannot insist on another type of performance to obtain the same result.

Where there is conflicting evidence on the question of impossibility, it is a question of fact for a court or mediator to resolve.

Examples of impossibility/impracticability are varied, but typically fit into a few categories, the first being the destruction of the subject matter of the contract. If I agree to sell my car and the car is destroyed in a fire, my obligation to sell the car will be excused, and the buyer cannot demand that I sell a different car to fulfill the contract.

Another example arises in personal services contracts. If I agree to sing at a concert, but I am seriously injured in a car accident such that I cannot physically perform, my contract obligation will be legally excused.

Contractual performance also can be excused when laws change. If I agree to sell and ship wood products for use in the manufacturing of guitars, and after the contract is formed the country where the wood grows passes a law prohibiting the harvesting of the wood because the trees are declared endangered, my contractual performance will be impossible to perform and excused where there is no other source for the wood needed.

Contracts also may be rendered impossible to perform because of natural events. For example, if I contract to supply goods manufactured in Taiwan but the factory is destroyed by a tsunami, performance likely will be excused. Similarly, if the same tsunami were to sink the freighter carrying the goods from Taiwan, performance of the contract may be excused if the seller has no means to timely replace the goods.

As noted, invoking this doctrine carries with it a fairly high applicability threshold. Mere inconvenience, added expense, or lack of profitability will not be sufficient reasons to excuse performance. Nor will circumstances that were foreseeable be grounds to trigger impossibility as a defense if sued. Similarly, a promisor cannot have assumed the risk of the circumstances that later are offered to excuse performance.

Contracting parties will often attempt to anticipate and contract around circumstances that may prevent or delay performance. Doing so is only prudent. The impossibility doctrine exists to address anything the parties could not reasonably foresee which makes it an infrequently used doctrine but one that should not be overlooked when problems arise.