Northern Indiana Public Service Company (NIPSCO), an electric utility, entered into a long-term contract with Carbon County Coal Company to purchase coal for its power plants. The contract, signed in 1978, required NIPSCO to purchase approximately 1.5 million tons of coal over 20 years at prices that escalated with inflation.

After the contract was signed, several developments made the contract economically disadvantageous for NIPSCO: (1) demand for electricity declined due to conservation efforts and economic recession, (2) the price of alternative energy sources (particularly natural gas) fell dramatically, (3) new environmental regulations made coal-fired generation less attractive, and (4) NIPSCO's overall energy needs decreased significantly.

By 1985, NIPSCO was purchasing coal under the contract at prices substantially higher than market rates and had excess capacity that made the coal unnecessary. NIPSCO stopped taking deliveries and refused to pay for coal, claiming that performance had become commercially impracticable. Carbon County Coal sued for breach of contract, seeking damages for the remaining term of the contract.

Commercial impracticability under UCC § 2-615 and common law requires:

• Unforeseen contingency: The event making performance impracticable must not have been reasonably foreseeable at the time of contract formation
• Risk allocation: The risk of the contingency must not have been allocated to the party seeking excuse, either expressly or by implication
• Extreme hardship: Performance must be not merely more expensive or burdensome, but truly impracticable (approaching impossibility)

The doctrine is narrowly construed and does not excuse performance merely because it has become economically disadvantageous or unprofitable. Market fluctuations and regulatory changes are generally considered foreseeable risks in commercial contracts.

Judge Richard Posner, writing for the majority, applied a strict economic analysis to the commercial impracticability doctrine. The court reasoned that the purpose of long-term contracts is precisely to allocate risks between parties, and that allowing excuse for changed economic conditions would undermine the fundamental purpose of such agreements.

The court emphasized that the events NIPSCO claimed made performance impracticable were actually foreseeable: energy demand fluctuations, price volatility in energy markets, and regulatory changes were all known risks in the utility industry. The court noted that NIPSCO, as a sophisticated commercial entity, was in a better position than Carbon County Coal to assess and bear these risks.

Posner distinguished between true impracticability (where performance becomes virtually impossible) and mere economic hardship. The court noted that NIPSCO could still perform under the contract—it simply chose not to because performance had become unprofitable. The doctrine of commercial impracticability was not intended to relieve parties from bad bargains or protect them from market risks they voluntarily assumed.

The court also considered the broader policy implications, arguing that allowing excuse in this case would create uncertainty in commercial contracts and discourage long-term planning. The decision emphasized that parties should use contractual provisions (such as force majeure clauses or price adjustment mechanisms) rather than rely on judicial excuse doctrines to address foreseeable risks.

NIPSCO v. Carbon County Coal established a restrictive approach to commercial impracticability that has influenced contract law for decades. The decision clarified that the doctrine is an extraordinary remedy available only in truly exceptional circumstances, not a general escape valve for economically disadvantageous contracts.

The case demonstrates the importance of careful risk allocation in commercial contracts and the courts' reluctance to excuse performance based on changed economic conditions. It established that sophisticated commercial parties are expected to anticipate and allocate common business risks through contractual provisions rather than rely on judicial intervention.

The decision has had significant practical impact on commercial contracting, encouraging parties to include more detailed force majeure clauses, price adjustment mechanisms, and other risk allocation provisions. It also influenced how courts analyze impracticability claims in other contexts, establishing a high bar for excuse that protects the stability and predictability of commercial agreements.

This case is essential for understanding modern commercial law and the balance between contractual stability and equitable relief. It remains a leading authority on commercial impracticability and continues to influence how courts analyze excuse doctrines in commercial contracts, particularly in industries subject to regulatory change and market volatility.