A default termination is the property owner’s way of telling the contractor that he has breached the contract. In a default termination, the property owner assumes the risk of having the termination converted to one for convenience if it is wrong and the contract so provides. When the property owner actually issues the termination notice, it runs that risk. It takes only one valid defense to void a default termination, and impossibility of performance is a classic defense to a breach of contract action. Although actual or economic impossibility may excuse nonperformance, mere performance difficulties will not provide a basis for relief for the contractor. If other contractors, manufacturers, or producers have demonstrated the capacity to accomplish the objective of the contract, a defaulting contractor’s inability to perform is not a sufficient basis to establish impossibility.
Performance difficulties arising during the term of the contract present questions as to whether the contractor or the property owner should bear the responsibility for unanticipated burdens. Either the property owner or the contractor may assume a risk of performance under the contract, including the risk of impossibility of performance, and the relative expertise of the parties regarding the subject matter of the contract will typically suggest which party assumes a particular risk.
A contractor who suggests a method of performance that is accepted by the property owner is deemed responsible for its success in the absence of an express assumption of responsibility by the property owner. Similarly, performance specifications place responsibility on the contractor for establishing methods and procedures to accomplish the objectives of the contract. Performance requirements beyond the state of the art, however, may exceed the contractor’s promise, unless he has expressly assumed that risk. The contractor is obligated to perform that which he has undertaken. Mere performance difficulties, short of actual or economic impossibility, will not excuse a contractor from performing his promise.
On the other hand, the risk of impossibility may have been assumed by the property owner if it provides detailed design specifications, under the theory that the property owner warrants that satisfactory performance is possible if the contractor complies fully with the specifications. When defective specifications are followed and satisfactory performance does not result, the contract may be considered impossible to perform. By insisting on its design specifications, particularly in the light of known deficiencies, the property owner accepts the responsibility for their impossibility. If the property owner requires performance by other than the specified means, the contractor may recover excess costs incurred in attempting to perform according to the change.
The doctrine of impossibility is concerned primarily with those situations where extra work is performed by the contractor because the requirements of the specifications could not be accomplished without an inordinate expenditure of resources. For the contractor to recover under such circumstances, it is not essential to demonstrate actual impossibility. Rather, a showing that it is practically impossible to produce the desired object of the contract will generally suffice.
Fundamentally, the doctrine of impossibility involves two essential elements: (1) that the work is not within the contractual objectives agreed to by the parties; and (2) that the costs and difficulty of the work render the work commercially senseless. Thus, in legal contemplation, something is impracticable when it can only be done at an excessive cost.
The doctrine represents the ever-shifting line, drawn by courts hopefully responsive to commercial practices and mores, at which the community’s interest in having contracts enforced according to their terms is outweighed by the commercial senselessness of requiring performance. To establish commercial impossibility, the contractor must demonstrate that the work called for by the contract specifications was either absolutely or practically impossible to perform. In order to do this, the contractor must not only establish his own failure of performance, but also prove that no one else could have performed under such circumstances. But if the contractor was aware of the impossibility of performance, having been forewarned, he is generally held to have assumed the risk of impossibility. A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be accomplished at an excessive and unreasonable cost. When the issue is raised, the court is asked to construct a condition of performance based on the changed circumstances, a process that involves at least three reasonably definable steps. First, a contingency–something unexpected–must have occurred. Second, the risk of the unexpected occurrence must not have been allocated either by agreement or by custom. Finally, occurrence of the contingency must have rendered performance commercially impracticable. Unless the court finds these three requirements satisfied, the plea of impossibility must fail. Moreover, when performance of a contract is deemed impossible, it is a nullity.
The excuse of legal impossibility is only available where, under property owner specifications, failure to perform is due to the circumstance that no way is known in industry how to manufacture the supplies in question according to the specified design or performance characteristics.
Once commercial impracticability has been established, the courts will examine the contractual relationship of the parties and allocate the risk of impossibility to whichever party should bear responsibility for the failure of contract performance.
If the contractor knew, or should have known, from the nature and object of the contract that compliance with specifications might be impossible to attain, the contractor is generally held to assume the risk of that impossibility. This is particularly so if performance is based on the contractor’s specifications, or if the contractor is deemed to have superior expertise. Under such a contract, the contractor’s obligation goes beyond the mere duty to exercise the skill and competence of ordinary prudent and skillful craftsmen engaged in a similar field or enterprise; his obligation does not stop until performance is reached, and if the task is impossible, he must bear the cost attributable to nonperformance.
Additionally, once a contractor knows, or should reasonably know, of the deficiency, a requirement to place the property owner on notice exists. Such notification enables the property owner to determine whether to continue performance of the contract and whether continued performance is the most feasible and economic means of correction.
In those instances where the contractor represents that he possesses more than ordinary expertise and capability, assuring the property owner that he has developed novel and revolutionary technical processes, and the Property owner awards a contract to him in reliance on such assurances, the contractor must bear the responsibility for failure to perform.
The invitation to an unexperienced contractor to entangle himself in this briar bush may be deemed morally reprehensible. But it cannot be and is not denied that the law allows the property owner to do it if it disclaims any warranty by clear and unambiguous language. This is particularly so where the contractor knew that the specification requirements were beyond the state of the art and commercially impracticable. Even assuming that the contractor did not assume the risk of impossibility, he must prove that the specifications were beyond the state of the art or impossible. For relief to be granted for impossibility, the contractor must show that the nature of the performance he promised was commercially senseless, not only to himself, but also to other manufacturers.
There can be little sympathy for contractors who seek refuge behind the label of commercial senselessness (impractica¬bility) without proof that they have made an effort to obtain performance in an alternative fashion.
When a contractor complains that he is unable to obtain a supply of a particular commodity called for by the contract, he must show that the product was unavailable within the boundaries of a reasonable area in order to have a creditable excuse. The elimination or reduction of the contractor’s own supply without proof of more widespread calamity, rendering performance truly senseless, will not suffice to excuse performance. A contractor’s failure to exhaust alternative sources of performance highlights the difference between subjective impossibility and objective impossibility. Only the latter is the basis for excusing performance. The contractor has the burden of proof that he explored and exhausted alternatives before concluding performance was commercially senseless.
When a contractor has no way of knowing essential information concerning the performance of his contract and the property owner has such information, the property owner has an affirmative duty to disclose such knowledge if that knowledge is vital to contract performance. Failure to fulfill that duty could constitute a breach of contract by the property owner. However, there is no obligation for the property owner to put a contractor on notice of every difficulty a procuring agency believes the contractor might encounter during contract performance or for it to share every bit of information it has, whether or not the contractor requests such information. To sustain an allegation that the property owner has violated its duty of disclosure by withholding superior knowledge, the contractor must show that the property owner in fact possessed such knowledge and that it was vital to contract performance.
Where the property owner has made no misrepresentations, has no duty to disclose information, and does not improperly interfere with performance, a fixed-price contractor bears the burden of unanticipated increases in costs. There are many contracts–where the contract generally relates to known or standard products, or where the ratio of actual and potential knowledge definitely favors the contractor, or where a contractor can reasonably be expected to seek the facts for himself–in which the property owner may be under no duty to volunteer information in its files.
There are other instances in which the property owner is clearly under an affirmative obligation and cannot remain silent. The property owner is not excused from liability if it breaches an independent duty to reveal data, or if the end product embodies a material misrepresentation misleading the contractor. Where the property owner possesses vital information that it was aware that contractor needs, but would not have, it cannot properly let the contractor flounder. Although it is not a fiduciary toward its contractors, the property owner–where the balance of knowledge is so clearly on its side– can no more betray a contractor into a ruinous course of action by silence than by the written or spoken word.
The sorting out of duties arising from a conflict between the contractor’s assumption of risk in bidding on a contract without thorough inquiry and the obligation of the property owner to disclose factors of substantial influence on contract performance depends on three general situations producing the problem; the property owner (1) may know, but conceal; (2) may not know, and not be charged with knowing, or (3) may not know, yet be legally charged with the knowledge because of its superior opportunity (or other factors warranting a bidder’s reasonable expectation). The earned consequences in the first and second instances are predictable, but in the third, the responsibility should be determined on the basis of the balance of fault and reasonable expectations, with the outcome dependent on the circumstances of the individual case.
The risk can be shifted to the property owner where the property owner has some superior knowledge that it knew, or should have known, that the contractor did not possess, which would have aided performance, and that the property owner failed to disclose to the contractor.
In the context of a duty to disclose, superior knowledge on the part of the property owner is material only when it is specific as to some fact that a contractor needs to know in order to produce an item that meets the specification and when it either is exclusive or is not reasonably available elsewhere. However, it would impose an unreasonable burden on the property owner to hold that it is under an implied contractual duty to put a contractor on notice with respect to all the difficulties that might be encountered in the performance of the contract. And if the superior knowledge is equally available to both property owner and industry, the property owner is not obligated to obtain such information and provide it to the contractor.
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