Can I Get Out of a Contract Because Circumstances Have Changed?
When circumstances change dramatically after a contract is signed — a supplier goes out of business, a key input becomes unavailable, a government order prohibits performance, or the purpose of the contract is eliminated by an unexpected event — business owners sometimes ask whether they can be excused from their contractual obligations. The answer depends on doctrines that courts apply carefully and narrowly: impossibility, impracticability, and frustration of purpose.
Impossibility of Performance
Impossibility of performance is a doctrine that excuses a party from performing a contract when performance has become objectively impossible — not merely more difficult or expensive, but actually impossible. The classic example is a contract to perform a service that becomes illegal after the contract is signed, or a contract that depends on the existence of a specific subject matter that has been destroyed.
New York courts have applied the doctrine of impossibility narrowly. The fact that performance has become more expensive or financially burdensome is generally not sufficient — courts have held that increased costs, even dramatic ones, do not excuse performance unless the contract itself allocates that risk to the other party.
Commercial Impracticability
Commercial impracticability is a related doctrine — adopted in Article 2 of the Uniform Commercial Code for the sale of goods and recognized to varying degrees in service contracts — that excuses performance when an unforeseen contingency makes performance commercially impracticable rather than strictly impossible. The standard is higher than difficulty: the event must be one whose non-occurrence was a basic assumption of the contract, and the party seeking excuse must not have assumed the risk of the occurrence.
Courts in New Jersey and New York have applied commercial impracticability narrowly in the context of business contracts, and the COVID-19 pandemic generated significant litigation over whether government-ordered shutdowns triggered the doctrine. Results varied depending on the contract type, the specific language, and how courts assessed whether the parties had allocated the relevant risks.
Frustration of Purpose
Frustration of purpose is a distinct doctrine that applies when performance remains possible but the purpose for which the contract was entered — known to both parties — has been substantially frustrated by an unforeseen event. The doctrine excuses performance not because performance is impossible but because the value of the other party’s performance has been eliminated by circumstances neither party anticipated.
Like impossibility and impracticability, frustration of purpose is applied narrowly. It requires that the frustrating event was not foreseeable and that the frustrated party did not assume the risk of the occurrence in the contract. A force majeure clause in the contract may address some of these scenarios explicitly and is typically analyzed before the common law doctrines are reached.
Practical Implications
Business owners who believe changed circumstances may excuse their performance — or who are facing a claim from the other side asserting excuse — should proceed carefully. Invoking impossibility or frustration without a solid legal basis can itself constitute a breach. The analysis depends heavily on the specific contract language, the facts of the situation, and the applicable law.
Business owners facing this issue should consult with a business attorney to evaluate whether the facts support an excuse defense and what the risks are of asserting it. For related topics, see our pages on business contracts and our post on force majeure clauses.
Business owners facing this issue are welcome to schedule a consultation with Russo Law LLC to evaluate whether the facts support an excuse defense and what the risks are of asserting it.
Disclaimer
The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. This corporate lawyer blog post is for informational purposes only and does not constitute legal advice. It is not an offer for Russo Law LLC to represent any party, nor does it create an attorney-client relationship. No action or inaction should be taken based on the information provided without seeking professional legal counsel. This post is intended for businesses in New York and New Jersey. It may not reflect laws in other jurisdictions.
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