Parties who sign a contract are legally bound to its terms: They have to perform their obligations, or face the consequences of a breach of contract. However, there are times when their obligations are excused, allowing them to break the contract without facing the repercussions. One of these excuses is impracticability.
When Does a Contract Become Impractical to Perform?
In Massachusetts, a party's obligations under a contract can be excused if they would produce a hardship or a risk that is:
- Severe, and
- Beyond the terms of the agreement.
Each of these issues is worth discussing in more detail.
The Risk Cannot Have Been Foreseeable
In order to claim that performing under the contract is impractical, it is up to the breaching party show that the complications that have created the problem were unforeseeable. Factors can include:
- How rare the risk is, both in general and in relation to the particular industry
- Whether the risk was mentioned in the contract
- Whether it is normal for businesses in this industry to carry insurance that covers this particular risk
- Any warning signs that the risk was present
However, Massachusetts courts have consistently decided that market fluctuations and economic downturns are not unforeseeable. After all, if these circumstances were to excuse a contractual obligation, few contracts would ever be enforced.
The Consequences Have to Be Severe
The party trying to break the contract also has to show that the costs of forcing them to perform under the deal are severe. The impact on the breaching party cannot be a trivial loss for them to avoid their obligations under the agreement.
The Contract Cannot Allocate the Risk
A complication cannot excuse someone's performance under a contract if the contract expressly allocated the risk of it happening, often in the form of a force majeure clause. If, for example, a vendor agreement says that the supplier is responsible for delivering the goods on time, even in inclement weather, the supplier cannot claim that their performance is excused because a tornado delayed their delivery truck. Not only has the contract already allocated this risk, but the very fact that it even considered the risk undercuts the supplier's claim that the risk was unforeseeable.
The Impracticability Defense During the Coronavirus Pandemic
Claiming that performing contractual duties is impractical has become very popular since the coronavirus pandemic has hit the U.S. and Massachusetts. The pandemic has upended numerous businesses in unforeseen ways and put many companies on the losing end of contracts that seemed fair when they were signed. Lots of businesses are now claiming that performing their obligations under these contracts is impractical and arguing that they should be excused from following through.
Contract and Business Litigation Lawyers at the Katz Law Group Serve Massachusetts
Whether you are a struggling business in need of a way out of a contract that has become impractical to perform, or a business looking to enforce the terms of a contract that was signed, the business and contract litigation lawyers at the Katz Law Group can provide the legal representation and guidance that you need. They can even help you draft effective contracts that allocate potential risks and avoid the need for litigation over allegedly impractical obligations in the future.