Restatement (Second) of Contracts
§ 261 Discharge by Supervening Impracticability
Summary
Section 261 addresses the doctrine of impracticability, providing that where, after a contract is made, a party’s performance is made impracticable without that party’s fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, the duty to perform is discharged, unless the language or circumstances indicate otherwise.
Impracticability does not require literal impossibility. It encompasses situations where performance has become excessively and unreasonably difficult or expensive due to unforeseen circumstances. However, mere increase in cost or difficulty is not sufficient—the change must be of a kind that was not reasonably foreseeable and must go to the heart of the exchange.
The doctrine requires three elements: (1) an event occurred making performance impracticable, (2) the non-occurrence of the event was a basic assumption of the contract, and (3) the party seeking discharge did not assume the risk of the event occurring. Courts apply this doctrine narrowly, recognizing that commercial actors are generally expected to account for foreseeable risks.
Key Elements
- 1Performance made impracticable without fault of the party
- 2Occurrence of an event whose non-occurrence was a basic assumption
- 3Not limited to literal impossibility
- 4The party must not have assumed the risk of the event
- 5Language or circumstances may indicate a different allocation of risk
Practical Application
Section 261 became particularly important during the COVID-19 pandemic, when businesses sought to excuse performance under contracts disrupted by government shutdowns, supply chain failures, and labor shortages. Courts also apply it in cases involving destruction of subject matter, death or incapacity of a person necessary for performance, and supervening illegality.
Exam Relevance
Impracticability questions often present dramatic factual changes—a war breaks out, a building burns down, a new regulation makes performance illegal. The key analytical steps: (1) Identify the supervening event. (2) Was performance made impracticable, not just more expensive? (3) Was the non-occurrence of this event a basic assumption? (4) Did either party assume the risk? Always consider whether a force majeure clause addresses the situation before reaching § 261.