Opinion ID: 779646
Heading Depth: 4
Heading Rank: 2

Heading: Impossibility and Commercial Impracticability

Text: 50 Seaboard argues that the slump in the timber market made its performance impossible or in the alternative commercially impracticable, thus excusing its nonperformance. Performance is only excused under this doctrine when it is objectively impossible. Jennie-O Foods, Inc. v. United States, 217 Ct.Cl. 314, 580 F.2d 400, 409 (Ct.Cl.1978). It is thus not enough for Seaboard to show that it was incapable of performing on the contract; it must show that no similarly-situated contractor could have performed. The market fluctuation did not make Seaboard's contract impossible to perform, only unprofitable. Other contractors performed on logging contracts during the same period. Therefore, Seaboard's performance was not objectively impossible and cannot be excused on that basis. 51 This court and its predecessor have long recognized that the doctrine of impossibility does not require a showing of actual or literal impossibility of performance but only a showing of commercial impracticability. Id. at 408; Hercules Inc. v. United States, 24 F.3d 188, 204 (Fed. Cir.1994) (noting that the doctrine of impossibility of performance excuses delay or nonperformance of a contract where the agreed upon performance has been rendered `commercially impracticable' by an unforeseen supervening event not within the contemplation of the parties at the time the contract was formed); Natus Corp. v. United States, 178 Ct.Cl. 1, 371 F.2d 450, 456 (1967). The Supreme Court has reformulated the common law doctrine of impossibility as follows: 52 [W]here, after a contract is made, a party's performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. 53 United States v. Winstar Corp., 518 U.S. 839, 904, 116 S.Ct. 2432, 135 L.Ed.2d 964 (1996) (quoting Restatement (Second) of Contracts § 261). This defense requires Seaboard to show that (i) a supervening event made performance impracticable; (ii) the non-occurrence of the event was a basic assumption upon which the contract was based; (iii) the occurrence of the event was not Seaboard's fault; and (iv) Seaboard did not assume the risk of occurrence. See Winstar Corp., 518 U.S. at 904-10, 116 S.Ct. 2432. 54 Even if we assume without deciding that Seaboard's performance is impracticable because it would bankrupt the company, Seaboard must show that the non-occurrence of a slump in the timber market was a basic assumption of the What contract. See id. at 905, 116 S.Ct. 2432. [I]f [the risk] was foreseeable there should have been a provision for it in the contract, and the absence of such a provision gives rise to the inference that the risk was assumed. Id. (quoting Lloyd v. Murphy, 25 Cal.2d 48, 153 P.2d 47, 50 (1944)). In Winstar Corp., the contracts at issue provided that the government would give certain regulatory treatment with regard to capital reserve requirements to parties who purchased failed thrifts. The Supreme Court held that the government's substantive performance in the contracts — the favorable regulatory treatment — implied that the regulatory environment might change and,  a fortiori, allocate[d] the risk of regulatory change to the government. Winstar Corp., 518 U.S. at 906, 116 S.Ct. 2432. The Supreme Court also found that the statutes and regulations governing capital requirements had in fact changed numerous times. Id. at 906-07, 116 S.Ct. 2432. As a result, the non-occurrence of a regulatory amendment was not a basic assumption of the contracts at issue. Id. at 907, 116 S.Ct. 2432. 55 The non-occurrence of a slump in the timber market was not a basic assumption of the What contract. Seaboard contracted to harvest timber at a fixed price. The normal risk of a fixed price contract is that the market price will change. N. Ind. Pub. Serv., 799 F.2d at 275. Seaboard bet that the timber market would remain strong. The government, in contrast, insulated itself from the market's downward movement. Thus, the non-occurrence of market fluctuation was not a basic assumption of both parties in this case. See Karl Wendt Farm Equip. Co. v. Int'l Harvester Corp., 931 F.2d 1112, 1118 (6th Cir.1991) ([N]either market shifts nor the financial inability of one of the parties changes the basic assumptions of the contract such that it may be excused under the doctrine of impracticability. To hold otherwise would not fulfill the likely understanding of the parties as to the apportionment of risk under the contract. (citation omitted)). 56 Moreover, while the occurrence of a market slump cannot be Seaboard's fault, no impossibility defense will lie where the language or the circumstances indicate allocation of the risk to the party seeking discharge. Winstar Corp., 518 U.S. at 908, 116 S.Ct. 2432 (quoting Restatement (Second) of Contracts § 261). Because Seaboard entered into a fixed-price contract, it carried the risk that the market would slump. Tangfeldt Wood Prods., Inc. v. United States, 733 F.2d 1574, 1577-78 (Fed.Cir.1984) (holding that timber contractor bore the general risk of changing market prices and could not be deemed compelled to defer removal simply by the fact of low prices). Therefore, because the non-occurrence of a market slump was not a basic assumption of both parties and Seaboard bore the risk, Seaboard's impossibility defense fails as a matter of law. The Court of Federal Claims' rejection of both the impossibility and commercial impracticability defenses was thus correct. 57