CPA Exam — REG (Regulation)Business LawMedium
A homeowner hires a contractor to build an addition to their house. The contract specifies that the contractor must use a particular type of imported Italian marble for the flooring. Before construction begins, a sudden and severe trade embargo is imposed, making it impossible to import the specified marble from Italy. The contractor can source a similar quality marble domestically, but it is 300% more expensive. The contractor notifies the homeowner of the situation. Which of the following legal doctrines is most applicable to this scenario?
- ACommercial impracticability
- BMutual mistake
- CFrustration of purpose
- DImpossibility of performance
Show answer & explanationAnswer & explanation
Correct answer: A. Commercial impracticability
Commercial impracticability applies when unforeseen circumstances make performance extremely and unreasonably difficult or expensive, though not strictly impossible. The sudden, severe trade embargo and the 300% price increase for a substitute marble fit this doctrine. Impossibility would apply if no marble could be sourced at all.
Why the other options are wrong
- B. Mutual mistake occurs when both parties share a fundamental misunderstanding about a basic assumption of the contract at the time of formation, which is not the case here.
- C. Frustration of purpose applies when the *purpose* of the contract becomes valueless due to unforeseen circumstances, even if performance is still possible. Here, the purpose (building an addition with marble flooring) is still valuable, but the method of performance is severely impacted.
- D. Impossibility of performance applies when performance is objectively impossible (e.g., the subject matter of the contract is destroyed). Here, a substitute marble can be found, though at an extreme cost.
Commercial Impracticability
A doctrine that allows a party to be excused from contractual performance when unforeseen circumstances make performance extremely and unreasonably difficult or expensive, though not literally impossible.
- Circumstances must be unforeseeable at the time of contract formation.
- Performance must be commercially unreasonable, not just more expensive.
- Does not apply if the risk was allocated to the party seeking relief.
Memory trick: F-I-M-P: Frustration, Impracticability, Mistake, Impossibility.