Cecily Zamora
In Michigan common law, the term 'impracticability' is used to describe a situation where a party's performance under a contract becomes impracticable due to unforeseen events that were not assumed when the contract was created. This is often referred to as 'commercial impracticability', and it can be used as a legal defense by suppliers or manufacturers when facing increased expenses due to rising raw material prices or construction costs. To successfully use this defense, the supplier must demonstrate a connection between the price increase of raw materials and the contract in question. Courts applying Michigan law often refer to the Restatement Second of Contracts § 261 (1981) when dealing with cases involving impracticability.
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What You'll Learn
Increased price of raw materials
In Michigan, a rise in expenses due to the increased price of raw materials or the increased cost of construction does not typically qualify as impracticability. This is because "impracticability" means more than "impracticality". A mere change in the degree of difficulty or expense due to causes like increased wages, prices of raw materials, or costs of construction, unless well beyond the normal range, does not amount to impracticability. This is because it is the sort of risk that a fixed-price contract is intended to cover.
However, if there is an unforeseen factor outside the party's reasonable control that causes a severe shortage of raw materials, this may be considered impracticability. For example, a severe shortage of raw materials due to war, embargo, crop failure, or the unforeseen shutdown of major sources of supply, which causes a marked increase in cost or prevents performance altogether, may be considered impracticability.
To successfully use the defence of commercial impracticability, a supplier must demonstrate that the increase in the price of raw materials is related to an event that was outside of their control and not a basic assumption of the contract. The courts have generally found that material price increases of 50 per cent can rise to the level of commercial impracticability.
It is important to note that asserting a commercial impracticability defence may be challenging, as courts have made it clear that it is difficult to establish this defence. The key issue when considering an impracticability defence is whether an unanticipated circumstance has made the performance of the promise vitally different from what should reasonably have been within the contemplation of both parties when they entered into the contract.
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Increased cost of construction
In Michigan, a rise in expenses due to the increased price of raw materials or the increased cost of construction may qualify as commercial impracticability. However, this depends on the specific circumstances and contract terms. For example, in the case of Flathead-Michigan I, LLC v. Peninsula Devl., LLC, the defendants argued that the economic downturn of 2008 prevented them from complying with their loan terms, and they sought to amend their pleadings to include defences of commercial impracticability.
Commercial impracticability, impossibility, and force majeure are overlapping legal defences. In cases involving the defence of impracticability, Michigan courts have cited the Restatement Second of Contracts § 261 (1981). This states that if, after a contract is made, a party's performance is rendered impracticable without their fault by an event whose non-occurrence was a basic assumption of the contract, then their duty to perform is discharged unless the language or circumstances indicate otherwise.
To successfully use the defence of commercial impracticability due to increased construction costs, several factors must be considered. Firstly, there should be no specific contract clause addressing price variations. Courts have generally found that a material price increase of 50% can rise to the level of commercial impracticability. Secondly, the supplier must demonstrate a direct link between the increased construction costs and the rise in raw material prices. This link should be substantial and direct, and any claims must be carefully scrutinised to ensure they are valid.
It is important to note that the defence of commercial impracticability does not apply in cases involving the inability to obtain financing or a national economic downturn. Additionally, it does not apply when there are clear contractual provisions allocating the risk of such events to one party. In such cases, the party claiming impracticability may still be held responsible for their performance obligations.
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Economic downturns
In Michigan common law, impracticability is defined by the Restatement Second of Contracts § 261 (1981). This states that if, after a contract is made, an event occurs that was not a basic assumption of the contract and makes it impracticable for one party to perform their duties, then that party is discharged from their duty to perform, unless the language or circumstances indicate otherwise.
This defence has been used in cases where an economic downturn has prevented a party from complying with the terms of their loans and guarantees. For example, in Flathead-Michigan I, LLC v. Peninsula Devl., LLC, the defendants argued that the economic downturn of 2008 made it impossible for them to honour the terms of their loans. As a result, they sought to amend their pleadings to include affirmative defences of commercial impracticability, impossibility, and force majeure.
Commercial impracticability, impossibility, and force majeure are somewhat overlapping defences. They can be used when an event occurs that makes it impracticable for a party to perform their contractual obligations, and this event was not a basic assumption of the contract. However, it is important to note that a general economic downturn, without more specific circumstances, may not be sufficient to meet the threshold of commercial impracticability.
In Michigan, there is some debate about whether a rise in expenses due to increased raw material prices or construction costs qualifies as commercial impracticability. This is a complex issue, and the courts' determination will depend on various factors, such as the specific contract clauses and the extent of the price increases. Generally, a material price increase of 50% may be considered commercial impracticability if there is no special contract clause addressing price changes.
To successfully use the defence of commercial impracticability due to economic downturn, a party must demonstrate that the economic downturn was an unforeseen event that made it impracticable for them to perform their contractual duties. This defence may be more successful if the economic downturn is severe and affects a specific industry or region, rather than a general economic downturn.
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Financing issues
In Michigan, a common law defence of impracticability, also referred to as commercial impracticability, can be used in cases where there is a significant rise in expenses due to the increased price of raw materials or the cost of construction. This defence is applicable when there is no specific contract clause addressing material price increases. Courts in Michigan have typically considered material price increases of 50% as meeting the threshold for commercial impracticability.
It's important to note that the applicability of financing issues as a defence for impracticability depends on the specific circumstances and contract terms. Courts will consider whether the financial impediment was unforeseen and beyond the control of the party seeking to rely on the defence. Additionally, the contract language and any applicable law, such as the Restatement Second of Contracts § 261 (1981) in Michigan, will play a role in determining if financing issues qualify as a valid defence.
When facing financing issues that may lead to a claim of commercial impracticability, it is essential to thoroughly review the contract and understand the applicable laws. Seeking legal advice from professionals well-versed in Michigan law is crucial to navigate these complex situations effectively. Each case is unique, and the specific facts and circumstances will significantly influence the available options and potential outcomes.
To summarise, financing issues can be a factor in claims of commercial impracticability in Michigan, particularly when coupled with significant economic events. However, the applicability of this defence depends on various factors, and legal expertise is essential to assess each unique situation.
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Force majeure
In Michigan common law, the term 'impracticability' is used to describe a situation where a party's performance under a contract becomes impracticable due to unforeseen events beyond their control. This defence is similar to the concepts of commercial impracticability, impossibility, and force majeure, which are often considered overlapping defences in contract law.
In Michigan, a rise in expenses due to increased raw material costs or construction costs may qualify as impracticability, depending on the specific circumstances and the language of the contract. Courts in Michigan have cited the Restatement Second of Contracts § 261 (1981) to support this interpretation. This legal provision states that if, after a contract is made, a party's performance becomes impracticable without their fault due to an event that was a basic assumption of the contract, their duty to perform may be discharged unless the language or circumstances indicate otherwise.
For example, in the case of Flathead-Michigan I, LLC v. Peninsula Devl., LLC, the defendants argued that the economic downturn of 2008 prevented them from complying with the terms of their loans and guarantees. They sought to amend their pleadings to include affirmative defences such as commercial impracticability, impossibility, and force majeure.
It is important to note that the interpretation and application of force majeure can vary depending on the specific contract, jurisdiction, and applicable laws. In some cases, the force majeure clause may outline specific events that would trigger its application, while in other cases, it may be more generally worded. As such, it is crucial to carefully review the specific terms of a contract and seek legal advice when dealing with issues of impracticability or force majeure.
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Frequently asked questions
Commercial impracticability, impossibility, and force majeure are somewhat overlapping defenses. It occurs when a party's performance is made impracticable without fault by an event whose non-occurrence was a basic assumption upon which the contract was made.
In Michigan, a rise in expenses due to increased raw material prices or construction costs may qualify as commercial impracticability. However, suppliers must demonstrate a connection between the price increase and the raw materials.
One example is Flathead-Michigan I, LLC v. Peninsula Devl., LLC, where defendants argued that the 2008 economic downturn prevented them from complying with loan terms, seeking to amend their pleas to include commercial impracticability.
Courts applying Michigan law often refer to the Restatement Second of Contracts § 261 (1981). It states that a party's duty to perform is discharged when their performance becomes impracticable without fault due to an event that was a basic assumption upon which the contract was made.
