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Commercial Impracticability

The doctrine of legal impossibility does not demand a showing of actual or literal impossibility. Rather, impossibility may be established by proof of commercial impracticability. This principle is based on the assumption that a contractual duty is impracticable when it can be performed only on an unreasonable and excessive cost.

The doctrine of commercial impracticability has three elements:

(1) Something unexpected must have occurred;

(2) The risk of the occurrence must not be assigned by the contract or by custom; and

(3) The unexpected occurrence must have rendered performance commercially impracticable.

All three elements must be present in order to support a request for relief. Transatlantic Financing Corporation v. United States, 363 F.2d 312, (D.C. Cir. 1966); HLI Lordship Industries, Inc., VABCA No. 1785, 86-3 BCA 19,182.

The legal use of the term "impossibility" has long included more than absolute impossibility. Federal courts have followed the definition found in Restatement of the Law, Contracts Sec. 454:

* * * [I]mpossibility means not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved.

See Natus Corp. v. United States, 178 Ct.Cl. 1, 9, 371 F.2d 450, 456 (1967); United States v. Wegematic Corp., 360 F.2d 674, 676 (2d Cir.1966); Transatlantic Financing Corp. v. United States, 363 F.2d 312, 315 (D.C.Cir.1966). If a contractor proves "impracticability," i.e., "commercial impossibility," of a contract, it is entitled to recover its costs of attempting to perform the contract, provided that the contractor did not assume the risk of impossibility. Tombigbee Constructors, supra; Stock & Grove, Inc. v. United States, 204 Ct.Cl. 103, 130, 493 F.2d 629, 643 (1974).

Restatement, Second, Contracts Sec. 266 (1981) formulates the rule for existing impracticability as follows:

Where, at the time a contract is made, a party's performance under it is impracticable without his fault because of a fact of which he has no reason to know and the non-existence of which is a basic assumption on which the contract is made, no duty to render that performance arises, unless the language or circumstances indicate the contrary.

In Foster Wheeler the court pointed out that:

There is no dearth of precedent on the subject of assumption of risk of impossibility. Two factual questions have emerged from these earlier cases to be determinative of the legal issue: (1) which party had the greater expertise in the subject matter of the contract? and (2) which party took the initiative in drawing up specifications and promoting a particular method or design?

It has been noted in the past that in a situation involving a small business it is especially important for the Government to reveal the information it possesses. See Tyroc Construction Corp., EBCA 210-3-82, 84-2 BCA p 17,308 (1984); Johnson Electronics Inc., ASBCA No. 9366, 65-1 BCA p 4,628. A large, more experienced firm might more easily be found to have assumed the risk. See General Dynamics Corporation, Convair Division, ASBCA No. 13001, 71-2 BCA p 9161.

Because of the potential for abuse, the boards and courts have not applied the commercial impracticability standard with frequency or enthusiasm. The mere fact that performance is more expensive than originally contemplated is not sufficient to invoke the standard. Jennie-O Foods, Inc. v. United States, 217 Ct. Cl. 314, 580 F.2d 400 (1978). Nor does the Government warrant that its preferred method can be followed without difficulty or unanticipated problems. Natus Corp. v. United States, 178 Ct. Cl. 1, 371 F.2d 450 (1960).

Rather, to recover on this basis the contractor must show that performance was commercially senseless and that to hold it to the terms of the contract would be positively unjust. Jalaprathan Cement Co., Ltd., ASBCA No. 21248, 79-2 BCA p 12,927. See also Restatement (Second) of Contracts s 261 comment (d) (1981) ("Performance may be impracticable because extreme and unreasonable difficulty, expense, injury, or loss to one of the parties will be involved."). As this Board stated in L. J. Casey Co., AGBCA No. 75-148, 76-2 BCA p 12,196, the work required clearly must have been beyond the scope of the bargain, not within the contemplation of the parties at the time of contracting.

If a contractor has not proven commercial impracticability, it logically follows that it has not met the higher, objective standard of impossibility. A claim on this basis requires consideration of the contractor's efforts to meet specifications; the ability of other contractors to comply with them; the extent to which the specifications exceeded the state of the art; and a determination as to which party assumed the risk of performance. See Oak Adec, Inc. v. United States, Cl. Ct. No. 507-86C (issued Nov. 26, 1991), and cases cited therein.

(Also See Practical Impossibility)

(Also See Superior Knowledge)