A manufacturer contracts to sell 1,000 units of a specialized component to a buyer for $50,000, with delivery in six months. Three months before delivery, the manufacturer's factory burns down, destroying its unique machinery needed to produce the components. The manufacturer informs the buyer that it cannot fulfill the order. The components are not available elsewhere. What is the legal effect of the factory's destruction on the contract?
- AThe manufacturer is in breach of contract and liable for damages.
- BThe contract is discharged due to commercial impracticability.
- CThe contract is discharged due to impossibility of performance.
- DThe contract is suspended until the factory can be rebuilt.
Show answer & explanationAnswer & explanation
Correct answer: C. The contract is discharged due to impossibility of performance.
The destruction of a specific, unique item essential for performance, through no fault of either party, renders performance objectively impossible and discharges the contract. The factory's destruction and its unique machinery make it impossible for *anyone* to produce those specific components for *this* manufacturer.
Why the other options are wrong
- A. Impossibility is a defense to breach; if performance is impossible through no fault, there is no breach.
- B. Commercial impracticability applies when performance is extremely burdensome, expensive, or difficult, but still *possible*. Here, it's objectively impossible.
- D. Suspension is not the typical remedy for impossibility; the contract is discharged, meaning both parties are excused from further performance.
Impossibility vs. Impracticability
Impossibility discharges a contract when performance becomes objectively impossible due to an unforeseeable event (e.g., destruction of unique subject matter). Impracticability discharges a contract when performance becomes extremely and unreasonably difficult or expensive, but still technically possible, due to an unforeseeable event.
- Impossibility: Performance cannot be done by anyone.
- Impracticability: Performance can be done, but at extreme and unreasonable cost/difficulty.
- Both require unforeseeable events.
- Neither party at fault.
Memory trick: Defenses are shields, protecting a party from breach claims.