When Performance Becomes Impossible or Unfeasible – Who Bears the Risk?
Whether performance is excused depends on the event that makes performance impossible or unfeasible, and whether that event was contemplated under the contract. If the event was so unusual and unexpected that the parties could not reasonably have foreseen it, and if it is unfair to place the risk of its happening on either party, then the Court may excuse further performance of the contract on both sides. On the other hand, if the risk that such an event could happen was one that the parties should reasonably have anticipated, or if the contract assigned that risk to one of the parties, then the Court normally would not excuse further performance. Known risks assigned by contract will not excuse performance no matter how disastrous the consequence of that risk.
There are at least three levels of impossibility including:
Impossibility of Performance
Where performance becomes physically impossible, further performance would almost certainly be excused. For example, a roofing contractor would not be in breach for failing to complete a roof on a building destroyed by fire through no fault of his.
Frustration of Purpose
Where the principal purpose of a contract is destroyed, further performance would probably be excused, absent a contract provision to the contrary. For example, the roofer who contracts to buy material for use on a building destroyed by fire may be able to cancel that material contract. While the purchase of roofing material is not rendered impossible by the fire, the purpose for which the materials were contracted is impossible to achieve through no one’s fault.
Where performance becomes so difficult or costly that the value of the contract to one party is destroyed, continuing that performance to completion may be financially impractical. However, despite severe economic consequences, further performance may not be legally excused unless the direct cause of the difficulty could never have been foreseen. Absent extraordinary circumstances, losing money is not a legal defense to a breach of contract action.
Where performance is excused after work has begun, recovery will usually be allowed for the fair value of work actually performed, but not for lost profits on work not done as could be recovered in a breach of contract action. In a recent Massachusetts case, a General Contractor was permitted to cancel a material contract with a supplier because the owner unexpectedly deleted that material for the Project. The court ruled the owner’s deletion wholly destroyed the purpose of the contract with the supplier, which excused further performance. The supplier was ruled entitled to recover for material supplied but not entitled to its profit on the remaining part of its contract that was cancelled.
In summary, unanticipated circumstances may excuse a failure to perform contract work completely but only where:
- an unexpected event occurs without the fault of the party invoking the defense;
- that event makes further performance impossible or so difficult or expensive as to frustrate the purpose of the contract or destroy its value; and