Full question:
I signed a 'memo of understanding' with another owner of a corporation (corp to corp) for a two year contract for support management services; which said, 'cannot be canceled for any reason'. My corporation, due to financial losses, cannot continue to service the monthly agreed amount and will now close that arm of service for which the contract was signed, but remain in business from other contracts. Is my corporation obligated to continue to pay on the contract if the service for which the contract agreement was signed is no longer a functioning business product of my corporation?
- Category: Contracts
- Subcategory: Breach of Contract
- Date:
- State: California
Answer:
Impossibility of performance is a defense used in contract law to excuse the performance of one of the parties. In order for the defense to succeed, the party claiming it must not have contributed to the conditions making performance imposssible. Impossibility must be due to unforeseen and uncontrollable circumstances, such as death, destruction of the subject matter, or failure of the means of deliver.
Under the Restatement of Contracts §454:
"Legal impossibility may be established without showing actual or literal impossibility. Thus a finding of legal impossibility may be based on ‘commercial impracticability’... As noted before, practical impossibility need not be actual impossibility. It can be such that it is economically infeasible or it is not possible to construct within either the allotted or a reasonable construction time. As best expressed, practical impossibility means that the result asked for is not possible within the basic objectives contemplated by the parties so as to amount to commercial senselessness"
The modern trend is to allow the defense of impossibility when performance is impracticable because of excessive and unreasonable difficulty or expense. The impossibility must be in the nature of the thing to be done (objective impossibility) and not in the inability of the promisor to do it (subjective impossibility). It is not enough for a party to show that it was incapable of performing on the contract; it must show that no similarly-situated contractor could have performed.
Where contracts for the sale of goods are concerned UCC 2-615 sets forth three conditions which must be satisfied before performance is excused:
(1) a contingency has occurred;
(2) the contingency has made performance impracticable; and
(3) the nonoccurrence of that contingency was a basic assumption upon which the contract was made.
This content is for informational purposes only and is not legal advice. Legal statutes mentioned reflect the law at the time the content was written and may no longer be current. Always verify the latest version of the law before relying on it.
