Performance, breach, and discharge - Impossibility, impracti...

Learning Outcomes

This article explains how contractual duties may be discharged by impossibility, impracticability, and frustration of purpose on the MBE, including:

• Identifying fact patterns in which post-formation events trigger analysis of impossibility, impracticability, or frustration of purpose rather than breach.
• Distinguishing true impossibility from mere increased difficulty, and separating impracticability and frustration of purpose from ordinary commercial risk or reduced profitability.
• Stating the elements of each doctrine at common law and under the UCC, with emphasis on objective impossibility, extreme and unreasonable difficulty, and destruction of the contract’s principal purpose.
• Evaluating foreseeability, allocation of risk, and the effect of force majeure clauses, risk-of-loss rules, and identified-goods provisions on whether discharge is available.
• Determining the legal consequences of discharge, including when duties are extinguished, when performance is only suspended, and when restitution or recovery of deposits is appropriate.
• Applying a clear, stepwise approach to MBE-style questions that tracks timing of events, identifies which party seeks discharge, and tests whether that party expressly or implicitly assumed the relevant risk.
• Avoiding common exam traps, such as assuming that financial hardship, price spikes, regulatory inconvenience, or partial interference automatically excuse performance.

MBE Syllabus

For the MBE, you are required to understand discharge of contractual duties by post-formation events, with a focus on the following syllabus points:

• Recognizing when performance is excused by impossibility, impracticability, or frustration of purpose.
• Distinguishing between these doctrines and mere increased cost or hardship.
• Understanding the allocation of risk and foreseeability.
• Applying the rules to both common law and UCC contracts.
• Identifying when a party may recover in restitution after discharge.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following best describes the doctrine of impossibility?
   1. Any event that makes performance more expensive excuses the contract.
   2. Only events that make performance objectively impossible excuse the contract.
   3. Any event unforeseen by the parties excuses performance.
   4. Only events caused by the non-breaching party excuse performance.
2. Under the UCC, which of the following is most likely to discharge a seller’s duty to deliver goods?
   1. A dramatic increase in the cost of raw materials.
   2. A government embargo banning the sale of the goods.
   3. The seller’s financial hardship.
   4. The buyer’s refusal to pay in advance.
3. Frustration of purpose requires:
   1. The subject matter of the contract is destroyed.
   2. The principal purpose of the contract is substantially undermined by an event, and both parties knew of this purpose.
   3. The contract becomes more expensive to perform.
   4. The contract is illegal at formation.

Introduction

Contracts may be discharged when events after formation make performance impossible, impracticable, or frustrate the contract’s purpose. These doctrines excuse parties from their obligations when extraordinary circumstances occur that were not allocated by the contract. They operate as excuses to performance, not as defenses at the moment of formation.

On the MBE, these issues typically arise after you have a valid contract and a supervening event occurs. Carefully track the timing of events (before vs. after contract formation) and ask:

• Did something happen after formation?
• Did that event destroy the ability to perform, radically increase the burden, or wipe out the contract’s point?
• Did the contract or the circumstances allocate the risk of that event to one party?

Key Term: Discharge
The release of a party from further performance under a contract, usually due to fulfillment, agreement, or operation of law (including supervening impossibility, impracticability, or frustration of purpose).

These doctrines are narrow. Increased inconvenience or cost is usually not enough. The examiners often test whether the event goes to a basic assumption of the contract or was instead a foreseeable risk the parties implicitly accepted.

Key Term: Basic Assumption
A fact or circumstance that was so fundamental to both parties’ bargain that the non-occurrence of a particular event was taken for granted when they contracted. If that assumption fails, discharge may be available.

Impossibility

Impossibility excuses performance when an unforeseen event occurs after contract formation that makes performance objectively impossible for anyone—not just this promisor. The event must not be the fault of the party seeking discharge, and the risk must not have been allocated to that party by the contract.

Key Term: Impossibility
A doctrine excusing contractual performance when an event makes performance objectively impossible for anyone, not just the promisor.

Common impossibility fact patterns:

• Destruction of the subject matter essential to performance.
• Death or incapacity of a party necessary for personal performance under a personal-services contract.
• Supervening illegality (a new law or order makes the agreed performance unlawful).
• In some jurisdictions, the failure of a specific, identified source of supply when the contract is premised on that source.

Key Term: Supervening Illegality
A change in law or governmental order, after contract formation, that makes the agreed performance illegal and may discharge the duty to perform.

Elements of impossibility (common law)

• A valid contract exists.
• After formation, an unforeseen event occurs.
• The event renders performance objectively impossible.
• The party seeking discharge is not at fault.
• The contract or circumstances did not allocate the risk of this event to that party.

If performance is merely more difficult, time-consuming, or expensive, impossibility does not apply.

Examples of events that do trigger impossibility:

• A unique painting, one-of-a-kind building, or specific piece of machinery that is the contract’s subject is destroyed without fault of the promisor.
• A performer who contracted to sing at a concert dies or becomes physically incapacitated before the performance.
• “Prohibition II” or a similar law bans the sale or service of alcohol after a bar contract is formed.

Temporary impossibility

Some events are temporary (e.g., a short-term government shutdown, temporary export ban, or brief impossibility due to a storm). These usually suspend performance rather than discharge it altogether, unless:

• The delay substantially increases the burden or risks of performance, or
• The time of performance was essential (e.g., a concert tied to a specific date).

Key Term: Temporary Impossibility
A supervening event that makes performance impossible for a limited time, generally suspending rather than discharging duties unless the delay materially changes the agreed performance.

Death and incapacity

Death does not automatically discharge contractual duties. Ask whether the contract depended on a specific person’s unique skills.

• If a “special person” is essential (e.g., a famous artist, a particular surgeon, or a specific band), their death or incapacity usually makes performance impossible and discharges the duty.
• If performance could be delegated or the obligation is merely to pay money, the estate is normally still liable; impossibility does not apply.

Destruction of subject matter

The destruction must involve the very thing required for performance, not just the promisor’s property in general.

• If you contract to sell a specific identified car and that car is destroyed before risk of loss passes, performance is impossible.
• If you contract to sell “1,000 bushels of generic wheat,” and one silo burns but you can obtain wheat elsewhere, performance is not impossible.

Supervening illegality

If a law or governmental order enacted after contract formation makes performance illegal, the duty is discharged from that point forward. This often appears in MBE questions as a statute banning an agreed activity or as new regulations imposing a complete prohibition.

Key Term: Force Majeure Clause
A contractual provision that allocates the risk of extraordinary events (e.g., war, natural disasters, strikes, government orders) by specifying when such events excuse or delay performance.

If the contract contains a force majeure clause covering the event, apply that clause first; the common-law doctrine of impossibility only fills in gaps.

Mere hardship is not enough

Impossibility is not available where:

• The promisor’s costs increase (even significantly),
• The promisor’s business conditions worsen, or
• The promisor’s property is damaged but can be replaced or repaired in time.

Those situations may implicate impracticability (below), but often no excuse is available.

Worked Example 1.1

A contracts to paint B’s house. Before work begins, the house burns down in an accidental fire. Is A discharged from performance?

Answer:
Yes. The destruction of the subject matter (the house) makes performance objectively impossible, so A is discharged. Because the contract was for painting this house, and there is no longer a house, the duty is discharged by impossibility.

Worked Example 1.2

You contract to reroof my house for $10,000. Before you can perform, my house accidentally burns down. I insist that our contract requires you to rebuild my house and then reroof it. Are you obligated to do so?

Answer:
No. The contract’s basic assumption was that a house existed to be reroofed. Its destruction without your fault makes performance impossible. You are not required to rebuild the house; the duty to reroof is discharged.

Worked Example 1.3

Mickey contracts with a local tavern, The Whisky Jar, to bartend for one year in exchange for free drinks. Six months later, a law is enacted banning the sale and service of alcohol in the state. Must Mickey continue to perform?

Answer:
No. The new law renders the agreed activity (selling alcohol) illegal. This supervening illegality makes performance impossible, so both parties are discharged from further obligations.

Impracticability

Impracticability excuses performance when an event occurs after contract formation that was not anticipated by the parties, and performance would require extreme and unreasonable difficulty or expense. Performance is still possible in a literal sense, but the law treats it as too burdensome to require.

Key Term: Impracticability
A doctrine excusing performance when an unforeseen event makes performance extremely and unreasonably difficult or expensive, even though it is still physically possible.

Key common-law and UCC themes:

• The event must be unforeseen and must go to a basic assumption of the contract.
• The party seeking discharge must not have assumed the risk.
• Mere cost increases, even large ones, are typically not enough—unless they transform the contract into something fundamentally different.

UCC impracticability

Under the UCC (typically § 2‑613 and § 2‑615), impracticability may be found if:

• The contract’s identified goods are destroyed before risk of loss passes.
• Government regulation or order prevents performance (e.g., embargo, export ban).
• There is a severe, unexpected shortage of raw materials due to war, embargo, crop failure, or catastrophe.
• The agreed, exclusive source of supply fails without the seller’s fault.

A seller must allocate any remaining supply in a commercially reasonable manner and notify buyers.

Key Term: Risk of Loss
The point at which the risk that goods are damaged or destroyed without fault shifts from seller to buyer under contract and UCC rules. If the buyer bears the risk, the seller is generally not excused by destruction of the goods.

Elements of impracticability

• A valid contract exists.
• After formation, an unforeseen event occurs.
• The non-occurrence of the event was a basic assumption of the contract.
• The event makes performance extremely difficult or costly (not just less profitable).
• The party seeking discharge is not at fault and did not assume the risk.

Common fact patterns

• A seller’s only factory producing the contracted goods is destroyed by an unexpected fire.
• War or embargo makes shipping by necessary routes impossible or prohibitively dangerous.
• An unforeseen, catastrophic crop failure wipes out the seller’s entire crop when the contract is to sell that crop, not just “any” crop.

By contrast, the following typically do not excuse performance:

• A predictable price increase in materials.
• General inflation or economic downturn.
• A bad business deal where the seller will now lose money.

Worked Example 1.4

A seller agrees to deliver wheat to a buyer at a fixed price. Before delivery, a government embargo prohibits all wheat exports. Is the seller discharged?

Answer:
Yes. Under the UCC, a government embargo that prohibits export of the goods can make performance commercially impracticable. Because the embargo was a supervening governmental order and the seller did not assume this risk, the seller is discharged.

Worked Example 1.5

You contract to dig a wine cellar for me for $10,000. After you begin, you hit an unexpected rock formation and realize it will cost you twice as much to complete the job, resulting in a loss on the contract. May you claim impracticability and stop performing?

Answer:
Probably not. Hitting rock is a classic foreseeable construction risk. Increased cost alone, even doubling, is usually insufficient to establish impracticability unless the contract was premised on the absence of such obstacles and the risk was not allocated to you. Here, ordinary business risk remains with the contractor.

Special note: destruction of goods vs subject matter

The analysis for goods differs slightly:

• If identified goods are destroyed before risk of loss passes, impracticability (or impossibility) typically excuses the seller.
• If the goods are fungible and the seller can substitute from other sources, no excuse is available unless the contract was based on that specific source and its failure was unforeseeable.

Frustration of Purpose

Frustration of purpose applies when an event after contract formation substantially undermines the principal purpose of the contract, and both parties knew of this purpose at formation. Performance is still possible, but the value of performance to the party seeking discharge has been destroyed.

Key Term: Frustration of Purpose
A doctrine excusing performance when an unforeseen event destroys the contract’s principal purpose, known to both parties, even though performance is still technically possible.

Key elements:

• The party’s principal purpose in entering the contract is substantially frustrated.
• The event causing frustration occurs after formation and was not reasonably foreseeable.
• The event is not the fault of the party seeking discharge.
• The risk of the event has not been allocated to that party.
• The contract’s remaining value to that party is almost completely destroyed.

This doctrine is rare. Courts are reluctant to apply it unless the whole reason for the contract is wiped out.

Classic examples:

• Renting a room solely to view a specific parade or event that is later canceled by government order.
• Leasing a space to operate a business that becomes illegal due to a change in law.

Worked Example 1.6

C rents an apartment from D to view a parade. The lease is expressly for the parade weekend, and both parties understand that viewing the parade is C’s only purpose. The parade is canceled due to a government ban on large gatherings. Is C discharged from the lease?

Answer:
Yes. The principal purpose (viewing the parade), known to both parties, is completely frustrated by the cancellation. Performance (paying rent, providing the apartment) is still possible, but the purpose is destroyed. C is discharged under frustration of purpose and need not pay rent for that period.

Worked Example 1.7

You rent a Chicago apartment with a stadium view for one day because the Cubs are scheduled to play in the World Series that afternoon. An earthquake the day before causes the league to reschedule the game to a different city. The apartment is unharmed and can still be occupied. Are you excused?

Answer:
Likely yes, under frustration of purpose. The basic purpose—watching that specific game from that apartment—was the basis of the deal and was known to both parties. The game’s relocation, an extraordinary event, destroys that purpose even though you could still stay in the apartment.

By contrast, if an unforeseen event only makes use of the property less convenient (e.g., a tall person in a hat blocks your view from a stadium seat), your purpose may be impaired but not completely frustrated; frustration of purpose would not apply.

Allocation of Risk and Foreseeability

Discharge for impossibility, impracticability, or frustration is not available if:

• The contract expressly allocates the risk of the event to the party seeking discharge (e.g., “seller assumes all risks of supply interruptions” or a detailed force majeure clause).
• That party implicitly assumed the risk (e.g., by insuring against it or choosing a fixed-price contract despite known volatility).
• The event was reasonably foreseeable and the parties chose not to address it.

Key Term: Allocation of Risk
The assignment of responsibility for certain events or losses to one party under the contract, either expressly (in clauses) or by implication (from circumstances, custom, or policy).

Examples of risk allocation:

• Express: Force majeure clauses, “as is” clauses, and limitation-of-liability clauses.
• Implied: A contractor in a volatile market may be deemed to bear certain price risks; an owner may bear certain regulatory risks absent contrary language.

When analyzing an MBE question:

1. Look for express clauses addressing the event (force majeure, “subject to government approval,” “time is of the essence”).
2. Consider whether the event was foreseeable and common in that industry.
3. Ask whether the parties’ choices (fixed price vs cost-plus, identified source vs generic goods) implicitly placed the risk on one side.

Key Term: Force Majeure Clause
A clause that specifies which extraordinary events (e.g., acts of God, war, strikes, government orders) excuse or delay performance and how the parties’ obligations are adjusted when such events occur.

Restitution After Discharge

If a contract is discharged for impossibility, impracticability, or frustration, a party who has partially performed may recover in restitution for the value of any benefit conferred before discharge. This prevents unjust enrichment.

Key Term: Restitution
A remedy allowing a party to recover the value of benefits conferred on the other party, measured by the recipient’s unjust enrichment, rather than enforcing the contract price or expectation interest.

Key points:

• Restitution is available even when the contract itself can no longer be enforced.
• The measure is usually the reasonable value of the services or benefits, not the contract price.
• Deposits may be recoverable subject to offset for the other party’s costs or losses.

Worked Example 1.8

A builder is halfway through constructing a unique custom home when a sudden, massive landslide destroys the site and makes further construction impossible. The builder has incurred substantial labor and materials costs, and the owner has paid only a small initial deposit. The contract is discharged by impossibility. What remedy, if any, does the builder have?

Answer:
The builder cannot sue for expectation damages because future performance is excused. However, the builder can recover in restitution for the reasonable value of labor and materials that benefited the owner before the landslide (e.g., usable materials on site or value added to the land before destruction), subject to appropriate adjustments.

Exam Warnings and Tips

Exam Warning

If a party assumed the risk of the event (expressly or by implication), or if the event was foreseeable and not addressed, discharge will not be granted. The MBE often tests whether the risk was allocated by the contract.

Revision Tip

On the MBE, increased cost or hardship alone is not enough for discharge. Look for destruction of the subject matter, supervening illegality, failure of an essential source of supply, or events that truly undermine the contract’s principal purpose, known to both parties.

Additional exam suggestions:

• Always identify which party is seeking discharge and whether that party caused or assumed the risk.
• Distinguish carefully:
  • Impossibility → performance cannot be done by anyone.
  • Impracticability → performance is possible but extremely burdensome due to an unforeseen event.
  • Frustration of purpose → performance is possible, but its main value to one party has been destroyed.
• Under the UCC, pay close attention to risk-of-loss rules before concluding that destruction of goods excuses a seller.

Worked Example 1.9

A seller in Texas contracts to deliver “all oranges grown on Seller’s 500‑acre grove this season” to a buyer in New York. An unprecedented freeze destroys 95% of the oranges in the grove. Seller can buy substitute oranges from Florida but only at a price that would cause a large loss under the fixed-price contract. Must Seller perform by sourcing from Florida?

Answer:
No. The contract is tied to the output of Seller’s grove. The freeze, an unforeseen catastrophe, destroys the agreed source and makes performance impracticable. Seller is not required to obtain substitute oranges elsewhere at great loss; the duty is discharged, subject to restitution where appropriate.

Worked Example 1.10

Tenant leases a storefront to operate a retail clothing store. Six months later, a new zoning ordinance prohibits late‑night retail operations, forcing Tenant to close at 8 p.m. instead of midnight. Tenant claims frustration of purpose and stops paying rent. Is Tenant discharged?

Answer:
No. The lease’s principal purpose—operating a clothing store—remains possible. The reduced hours make the lease less profitable but do not destroy its essential purpose. This is mere hardship, not frustration of purpose; Tenant remains bound.

Key Point Checklist

This article has covered the following key knowledge points:

• Impossibility excuses performance only if it is objectively impossible for anyone to perform, not just difficult or costly.
• Temporary impossibility generally suspends, rather than permanently discharges, duties unless the delay materially changes the bargain.
• Impracticability excuses performance if an unforeseen event, going to a basic assumption of the contract, makes performance extremely difficult or expensive, not just more costly.
• Under the UCC, destruction of identified goods, government embargoes, and catastrophic shortages can support impracticability; mere price increases usually do not.
• Frustration of purpose excuses performance if an unforeseen event destroys the contract’s principal purpose, known to both parties, while performance remains possible.
• Mere increased cost, reduced profit, or inconvenience is not enough for discharge under any of these doctrines.
• If the contract allocates the risk—expressly (e.g., force majeure) or implicitly—discharge is not available.
• Restitution may be available for benefits conferred before discharge, even though expectation damages are barred.
• On the MBE, always analyze timing, the nature of the supervening event, risk allocation, and whether performance vs purpose vs burden is affected.

Key Terms and Concepts

• Discharge
• Impossibility
• Temporary Impossibility
• Supervening Illegality
• Impracticability
• Basic Assumption
• Frustration of Purpose
• Allocation of Risk
• Force Majeure Clause
• Risk of Loss
• Restitution