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When Your Supplier Backs Out: Learn The Ins And Outs Of The Defense Of Commercial Impracticability

Tuesday, September 04, 2007 12:42 pm

When Your Supplier Backs Out: Learn The Ins And Outs Of The Defense Of Commercial Impracticability

When is a contract avoidable based on impracticability and by whom? When dealing with contracts for materials and supplies, that question is answered by the Uniform Commercial Code (UCC). The UCC applies to transactions in goods. Its drafters modified the common law doctrine of impossibility, replacing it with the ostensibly more lenient standard or commercial impracticability.

It should be noted that "[m]ost courts hold that the UCC does not generally apply to alter the terms of a construction contract" because most construction contracts involve a mixture of goods and services. "Consequently, a construction contract which involves the supplying of labor and material is not controlled by the UCC if the service component is the predominant factor in the contract." However, where the predominant factor is the materials or supplies themselves, the UCC does apply. Accordingly, the commercial impracticability defense can be an important consideration to both contractors and suppliers. Elkins Manor Assocs. v. Eleanor Concrete Works, 183 W. Va. 501, 507 (1990).

You Can Rely On The UCC

UCC 2-615, titled "Excuse by Failure of Presupposed Conditions," allows a seller's delay or nondelivery without breach "if performance as agreed has been made impracticable by the occurrence of a contingency, the nonoccurrence of which was a basic assumption on which the contract was made." Good faith compliance with government regulations or orders also excuses nonperformance.

Courts have interpreted 2-615 to require the satisfaction of 3 conditions: (1) The unforeseeable occurrence of a contingency; (2) Impracticability of performance as a result of that contingency; and (3) That the nonoccurrence of that contingency was a basic assumption upon which the contract was made. Waldinger Corp. v. CRS Group Engineers, Inc., [...]

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