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:
In contract law, the defense of impossibility of performance may excuse a party from fulfilling their obligations under certain conditions. To successfully claim this defense, you must demonstrate that the inability to perform was not caused by your actions and that it resulted from unforeseen and uncontrollable circumstances. Examples include the destruction of the subject matter or the failure of means to deliver.
According to the Restatement of Contracts §454, legal impossibility can be established without showing literal impossibility. It can also be based on 'commercial impracticability,' meaning that fulfilling the contract has become excessively difficult or costly. Practical impossibility does not require actual impossibility; it can occur when achieving the contract's objectives is economically unfeasible.
For the defense of impossibility to apply, the impossibility must be objective, not subjective. This means it should be impossible for anyone in a similar situation to perform, not just you. In the context of contracts for the sale of goods, UCC 2-615 outlines three conditions that must be met for performance to be excused: (1) a contingency has occurred; (2) that contingency has made performance impracticable; and (3) the nonoccurrence of that contingency was a basic assumption of the contract.
In your case, if the service for which the contract was signed is no longer part of your business due to financial losses, you may have grounds to argue that performance is impracticable. However, you should consult with a legal professional to assess the specifics of your situation and the enforceability of the contract.
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.