E. Commercial Impracticability

• Author: John D. McCamus
• Profession: Professor of Law. Osgoode Hall Law School, York University
• Pages: 588-590

Page 588

Historically, discharge of the promissor on the basis of unexpected changes of circumstances has been rooted in a concept of impossibility. Accordingly, a seller of goods will be excused from a duty to deliver where transportation facilities are simply not available¹¹³but not where they have merely become considerably more expensive than originally anticipated.¹¹⁴Similarly, in the leading case of Davis Contractors,¹¹⁵it was stated that the mere fact that "there has been an unexpected turn of events, which renders the contract more onerous than the parties had contemplated ... [is not] by itself a ground for relieving a party of the obligation he has undertaken."¹¹⁶On the basis of such authorities, one might conclude that the mere fact that performance has become

Page 589

so expensive as to be commercially impracticable, rather than literally or physically impossible, does not constitute a frustrating event under English or Canadian common law. In principle, however, it is difficult to discern a rational basis upon which extreme increases in the cost of performance could never constitute frustration of an agreement. Applying the Davis Contractors test itself, it would seem that, for example, a hundredfold¹¹⁷increase in the cost of performance should be considered to be a change in circumstances that renders performance "a thing radically different from that which was undertaken by the contract,"¹¹⁸not-withstanding the fact that the performance remains literally possible.

American law has plainly recognized a test of commercial impracticability rather than impossibility for the application of frustration doctrine.¹¹⁹Although the doctrine of commercial impracticability has rarely been applied to cases where the changing circumstances merely involve increased expense of performance, the doctrine has been applied in such cases to a limited degree. Thus, for example, in Aluminium Co. of America v. Essex Group Inc.,¹²⁰severe increases in the cost of electricity resulting from OPEC initiatives were held to constitute a frustrating event. Similarly, in Florida Power & Light Co. v. Westinghouse Electric Co.,¹²¹extreme increases in the projected costs of disposing of spent fuel, with no commercially practicable alternative method available, constituted a frustrating event.

Little direct support can be found in Commonwealth authorities, however, for the proposition that commercial impracticability may constitute a frustrating event. There...