A contract is a binding legal agreement between the parties who sign it. However, there are circumstances where the parties are excused from performing their obligations without breaching the contract. One of them is when, through no fault of either party, an unforeseeable and unallocated risk has made it impossible to perform the contract as it was originally intended.
When Does a Contract Become Impossible to Perform?
In Massachusetts, contracts become impossible to perform when a fundamental assumption to the contract no longer exists, and neither party is to blame for the problem.
For example, in one case, a general contractor won a bid to build a hospital and signed an agreement with a subcontractor to do the windows. The general contractor's bid was later rescinded, though, and it had to cancel the subcontracts. The window subcontractor claimed that the general contractor was breaching their deal and sued to enforce the contract. The Supreme Judicial Court of Massachusetts, though, said that the general contractor's performance under the contract was excused because a fundamental assumption of its obligations to the subcontractor was that it would win the bid to build the hospital.
In essence, if the whole point of the contract is ruined, a party to the contract can justifiably breach it without paying the normal damages that come with breaking the deal.
The Frustration of Purpose Doctrine
In some cases, the whole point of the contract might not be completely ruined, though – only the value of performing under the contract. Massachusetts has recognized that this can excuse a breach of contract, as well.
Called the Frustration of Purpose Doctrine, parties that breach a contract can defend themselves by showing that the risk was unforeseeable and accidental and, while it did not make it impossible to perform under the contract, made it pointless for them to do so.
Risk Has to Be Unforeseeable and Unallocated
Importantly, the risk that makes it impossible or pointless to perform has to be unforeseeable and unallocated in the contract. If the agreement explicitly states which party is to bear a particular risk, and then that risk happens and affects the performance under the contract, a breach will not be excused for Frustration of Purpose or impossibility.
Steps can be made to prevent these defenses from being raised while the contract is being drafted by including, for example, a stringent force majeure clause.
Impossibility During the Coronavirus Pandemic
The impossibility defense has become incredibly important since the beginning of the coronavirus pandemic. Lots of business contracts have been reliant on people being allowed to congregate in small places. With that prohibited for public health reasons, plenty of contracts that were in place before the virus spread have fallen apart as parties have claimed that it is either impossible for them to perform their obligations or the purpose of the agreement has been frustrated.
Now that the virus has become an unfortunate part of life, though, it is no longer unforeseeable that it will impact the performance of a contract.
Massachusetts Business Litigation Lawyers at the Katz Law Group
Raising these defenses can save a business thousands of dollars by letting them get out of their contractual obligations without being forced to pay for the damages their noncompliance causes. Preventing a business partner from breaching their contract and getting away with it can be just as valuable. Protecting the company's brand in these situations is priceless.
The business and contract litigation lawyers at the Katz Law Group can help, regardless of which side of the dispute you find yourself on. They can also help you prevent this stressful situation from arising by crafting an agreement that accounts for risks that might arise and allocates those risks appropriately.