Contractor’s Risk

When Construction Claims for impossibility of performance arise, the issue of “assumption of risk” must be addressed. Since risk identification is often a prerequisite to performing a difficult project, its relevance to impossibility is apparent. Certainly, the promises made in the contract specifications will influence the degree to which a risk has been assumed. Barring any blatant (or foolish) voluntary assent to a substantial, but undefined, risk, the matter will be tempered by “custom of the industry” practice.

Economic Impossibility

The Spearin decision is often relied upon in implied warranty and economic impossibility claims:

“Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered. . . Thus one who undertakes to erect a structure upon a particular site assumes ordinarily the risk of subsidence of the soil. ..But, if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.”

Implied Warranty

With Spearin as the precursor, the theory of implied warranty states that plans and specifications should be workable; will satisfactorily produce the contract item; and will prescribe performance requirements that can be achieved. With this foundation laid, it is not difficult to establish equitable guidelines to define economic impossibility. A definition that fits these guidelines is:

“In the performance of the contract, an unanticipated event or condition occurred which was not (nor could reasonably have been) within the contemplation of the parties and for which prescribed performance requirements to be achieved would result in time and cost difficulties which are commercially senseless”.

Several arguments have been made which establish a much more difficult hurdle for sustaining an impossibility of performance claims. One of the more common arguments made to refute such a claim (and one frequently cited by the courts) is as follows:

Mere inconvenience or substantial increase in the cost of compliance with a contract, though they might make compliance a hardship, cannot excuse a party from the performance of an absolute and unqualified undertaking to do a thing that is possible and lawful. Courts cannot alter contracts merely because they work a hardship. A contract is not invalid, nor is the obligor therein in any manner discharged from its binding effect, because it turns out to be difficult or burdensome to perform.

CLAIM SUMMARY

The issue of impossibility of performance is a relatively rare entitlement that occasionally arises in manufacturing and construction contracts, but is also a difficult legal argument to prove and sustain. This is particularly true when the issue pursued is economic impossibility of performance.

Denver Phone: (303) 984-1941

Email: steve.holloway@disputesinconstruction.com
Steve Holloway/The Holloway Consulting Group, LLC
Construction Claims Consultants
10885 W. Beloit Pl.
Lakewood, CO 80227
Blog: disputesinconstruction.com
Web: hcgexperts.com

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