Performance, breach, and discharge - Impossibility, impracticability, and frustration of purpose

Learning Outcomes

After reading this article, you will be able to identify when a contract is discharged due to impossibility, impracticability, or frustration of purpose. You will understand the legal standards for each doctrine, the allocation of risk, and how these doctrines are tested on the MBE. You will be able to apply these principles to MBE-style questions and avoid common exam mistakes.

MBE Syllabus

For MBE, you are required to understand the circumstances under which contractual duties are discharged due to events occurring after contract formation. This article focuses your revision on:

  • Recognizing when performance is excused by impossibility, impracticability, or frustration of purpose.
  • Distinguishing between these doctrines and mere increased cost or hardship.
  • Understanding the allocation of risk and foreseeability.
  • Applying the rules to both common law and UCC contracts.
  • Identifying when a party may recover in restitution after discharge.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which of the following best describes the doctrine of impossibility?
    1. Any event that makes performance more expensive excuses the contract.
    2. Only events that make performance objectively impossible excuse the contract.
    3. Any event unforeseen by the parties excuses performance.
    4. Only events caused by the non-breaching party excuse performance.
  2. Under the UCC, which of the following is most likely to discharge a seller’s duty to deliver goods?
    1. A dramatic increase in the cost of raw materials.
    2. A government embargo banning the sale of the goods.
    3. The seller’s financial hardship.
    4. The buyer’s refusal to pay in advance.
  3. Frustration of purpose requires:
    1. The subject matter of the contract is destroyed.
    2. The principal purpose of the contract is substantially undermined by an event, and both parties knew of this purpose.
    3. The contract becomes more expensive to perform.
    4. The contract is illegal at formation.

Introduction

Contracts may be discharged when events after formation make performance impossible, impracticable, or frustrate the contract’s purpose. These doctrines excuse parties from their obligations when extraordinary circumstances occur that were not allocated by the contract. The MBE frequently tests your ability to distinguish between true discharge and mere hardship or increased cost.

Key Term: Discharge The release of a party from further performance under a contract, usually due to fulfillment, agreement, or operation of law.

Impossibility

Impossibility excuses performance when an unforeseen event occurs after contract formation that makes performance objectively impossible for anyone. The event must not be the fault of the party seeking discharge, and the risk must not have been allocated to that party by the contract.

Key Term: Impossibility A doctrine excusing contractual performance when an event makes performance objectively impossible for anyone, not just the promisor.

Events that may trigger impossibility include:

  • Destruction of the subject matter essential to performance.
  • Death or incapacity of a party necessary for personal performance.
  • Supervening illegality.

Impossibility does not apply if performance is merely more difficult or expensive, or if the event was foreseeable and the risk was not addressed in the contract.

Worked Example 1.1

A contracts to paint B’s house. Before work begins, the house burns down in an accidental fire. Is A discharged from performance?

Answer: Yes. The destruction of the subject matter (the house) makes performance objectively impossible, so A is discharged.

Impracticability

Impracticability excuses performance when an event occurs after contract formation that was not anticipated by the parties, and performance would require extreme and unreasonable difficulty or expense. The event must be unforeseen, and the risk must not have been allocated by the contract.

Key Term: Impracticability A doctrine excusing performance when an unforeseen event makes performance extremely and unreasonably difficult or expensive, but not strictly impossible.

Under the UCC, impracticability may be found if:

  • The contract’s subject goods are destroyed before risk of loss passes.
  • Government regulation or order prevents performance.
  • There is a severe shortage of raw materials due to war, embargo, or catastrophe.

A mere increase in cost, even if substantial, is not enough unless it alters the essential nature of the contract.

Worked Example 1.2

A seller agrees to deliver wheat to a buyer. Before delivery, a government embargo prohibits all wheat exports. Is the seller discharged?

Answer: Yes. The embargo makes performance impracticable under the UCC, so the seller is discharged.

Frustration of Purpose

Frustration of purpose applies when an event after contract formation substantially undermines the principal purpose of the contract, and both parties knew of this purpose at formation. The event must not be the fault of the party seeking discharge, and the risk must not have been allocated.

Key Term: Frustration of Purpose A doctrine excusing performance when an unforeseen event destroys the principal purpose of the contract, even though performance is still possible.

The frustrated purpose must be so fundamental to the contract that, without it, the transaction makes little sense. The event must be truly unexpected.

Worked Example 1.3

C rents an apartment from D to view a parade. The parade is canceled due to a government ban. Is C discharged from the lease?

Answer: Yes. The principal purpose (viewing the parade) is frustrated by the cancellation, so C is discharged.

Allocation of Risk and Foreseeability

Discharge for impossibility, impracticability, or frustration is not available if the contract allocates the risk of the event to the party seeking discharge, or if the event was foreseeable and not addressed in the contract. Parties may expressly or impliedly assume certain risks.

Key Term: Allocation of Risk The assignment of responsibility for certain events or losses to one party under the contract, either expressly or by implication.

Restitution After Discharge

If a contract is discharged for impossibility, impracticability, or frustration, a party who has partially performed may recover in restitution for the value of any benefit conferred before discharge.

Exam Warning

If a party assumed the risk of the event (expressly or by implication), or if the event was foreseeable and not addressed, discharge will not be granted. The MBE often tests whether the risk was allocated by the contract.

Revision Tip

On the MBE, increased cost or hardship alone is not enough for discharge. Look for destruction of the subject matter, supervening illegality, or events that truly undermine the contract’s purpose.

Key Point Checklist

This article has covered the following key knowledge points:

  • Impossibility excuses performance only if it is objectively impossible for anyone to perform.
  • Impracticability excuses performance if an unforeseen event makes performance extremely difficult or expensive, not just more costly.
  • Frustration of purpose excuses performance if an unforeseen event destroys the contract’s principal purpose, known to both parties.
  • Mere increased cost or hardship is not enough for discharge.
  • If the contract allocates the risk or the event was foreseeable, discharge is not available.
  • Restitution may be available for benefits conferred before discharge.

Key Terms and Concepts

  • Discharge
  • Impossibility
  • Impracticability
  • Frustration of Purpose
  • Allocation of Risk
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