Court Opinion

ID: 9543483
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:45:52.412319+00
Date Added: 2024-06-11T15:10:25.422200
License: Public Domain

KAUGER, Justice,
with whom OPALA, Justice, joins concurring:
I agree that no relief should be granted here. However, I believe that a fuller discussion of the Uniform Commercial Code, 12A O.S.1981 § 2-615,1 than that provided by the majority opinion, is warranted. Although the Court recognized the applicability of the Uniform Commercial Code (UCC) to the facts presented, it curtailed its discussion of commercial impracticability, a defense fairly comprised by the pleadings and the trial court’s findings of fact and conclusions of law.2
A basic tenet of commercial law, now codified in § 2-615 of the Uniform Commercial Code (UCC), is that a party’s duty to perform pursuant to a contract for the sale of goods may be excused on the basis of commercial impracticability.3 A contract for delivery of natural gas is recognized as a sale of goods under the UCC.4 Title 12A O.S.1981, § 2-615(a)5 provides that nonperformance of a contract will not constitute a breach where the seller has not assumed a greater obligation by the terms of the contract where “performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on *1221which the contract was made ..."6 As drafted, the statute appears to apply only to sellers; nevertheless, both the Official Code Comments7 and a number of courts have recognized the section as equally applicable to buyers if a purchaser satisfies all elements of the defense.8
The UCC appears to impose only two requirements to invoke this defense: (1) that the party asserting the defense through the terms of the contract not assume a greater obligation than is ordinary; and (2) that the performance not be made impracticable by the occurrence of a condition which alters a basic assumption upon which the contract is founded. A third element, judicially recognized as necessary to justify relief, involves the necessity that the occurrence making performance impracticable be unforseeable.9
Despite the fact that a cursory reading of the cases indicates that the doctrine should be expanded to situations where costs of performance have increased dramatically,10 the requirement of nonforseea-bility has severely limited the application of the doctrine.11 While the addition of this element might not seem onerous, it has been applied in such a way as to make the occurrence or nonoccurrence of virtually any condition, from wartime regulations12 to economic depression in the agricultural economy,13 foreseeable. It has been recognized, however, that a requirement of absolute nonforseeability is so logically inconsistent with the defense that the application of such a standard would nullify the doctrine.14
Courts have seldom allowed relief from contractual obligations on the basis of impracticability.15 However, many jurisdictions have been willing to at least pay lip service to a formulation of the doctrine which would not require absolute impossibility of performance16 before applying the defense but rather would excuse performance where it would require unreasonable difficulty, expense, injury or loss,17 or where failure to allow the defense would result in grave injustice.18 In order to meet the requirement of unreasonable expense a mere showing of loss under the contract is insufficient. To qualify, the *1222applicant must show extreme, not merely unreasonable, expense.19 Even those who criticize application of the defense to typical take or pay contract provisions recognize it may be applicable where the general financial health of the purchaser is threatened.20
At least one court has been willing to give a more expansive interpretation to commercial impracticability. In Aluminum Co. of America (ALCOA) v. Essex Group, Inc., 499 F.Supp. 53 (W.D.Pa.1980), the issue concerned the availability of relief from a long-term contract whereby ALCOA agreed to process alumina, provided by Essex, into aluminum for Essex’s use. The price for the processed aluminum was tied to two indexes. The demand charge was tied to changes in the Engineering News Record Construction Cost-20 Cities Average Index while production charges were tied to the Wholesale Price Index-Industrial Commodities (WPI-IC). One component 21 of the production charge tied to the WPI-IC constituted non-labor production costs including utility charges. In 1972, electricity costs skyrocketed largely due to the OPEC embargo and unanticipated pollution control costs. As a result, production costs outdistanced the indexed increase tied to the WPI-IC. The court found these occurrences unforseeable.22
In a decision to grant ALCOA relief, the federal district court compared and con-toasted the doctrines of mistake of fact, impracticability and commercial frustration. Finding a substantial area of similarity among the three doctrines, the court held for ALCOA on the bases of commercial impracticability and frustration.23 In so holding, the court found that the non-occurrence of an extreme deviation of the WPI-IC and ALCOA’s production costs was a basic assumption on which the contract was grounded. Despite the price-fixing formula, the court found that it was clear that “ALCOA neither assumed nor bore the risk of the deviation beyond the foreseeable limits of risk.”24
Alcoa has been soundly criticized, and even if an expansive view of ALCOA were adopted, the party presenting the defense of impracticability has the burden of establishing the defense.25 I would not change the rigorous requirement of § 2-615. Although the ultimate determination of excuse due to impossibility of performance is a question of law,26 the actual determination of whether a contract is factually or commercially impossible to perform is a question of fact.27
The defense of impracticability was raised in the trial court, but ONG failed to meet its burden of proof that despite what appears to be the assumption of a greater obligation under the contract, it neither assumed nor bore any risk for an increase in price beyond the forseeable limits of *1223deviation under the Natural Gas Policy Act of 1978. ONG’s argument that it lacked the ability to forsee the possibility of price deviation under the Act is unconvincing because among other reasons — at the time this contract was executed, the Act had been in effect for almost three years. It does appear, however, that ONG at least alleged that enforcement of this and similar contracts would severely impinge upon ONG’s overall financial health. In evaluating this argument, the significance of the expense must be considered in the context of total revenues.28 Although ONG alleged that enforcement of the contract would result in bankruptcy, no competent evidence of this contingency was presented. The evidence was insufficient to show sufficient injury to require a grant of relief.
Not unlike the impracticability defense, neither the market-out nor the force maj-eure clause call for redress in the instant case. It should be recognized that the contract in question modified the common law definition of force majeure and that contractual terms negotiated between consenting parties may alter the common law definition. Depending on the facts of each case, there may be instances where the market-out clause, the force majeure clause, or commercial impracticability may provide viable questions of fact for the jury. Because none of these mitigating circumstances are present in the record, I join the Court’s decision to reverse.

.Title 12A O.S.1981 § 2-615 provides:
"(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
(b) Where the clauses mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.”

. Although both the parties and the trial court referred to a "failure of markets” rather than to impracticability, as such, both the facts and the argument of counsel adequately present the defense.

. Asphalt Int'l, Inc. v. Enterprise Shipping Corp., 667 F.2d 261, 265-66 (2nd Cir.1981).

. KN Energy, Inc. v. Great Western Sugar Co., 698 P.2d 769, 778-79 (Colo.1985).

. Title 12A O.S.1981 § 2-615, see supra note 1.

. Title 12A O.S.1981 § 2-615, see supra note 1.

. U.C.C. § 2-615, Uniform Commercial Code Comment 9.

. Lawrence v. Elmore Bean Warehouse, Inc., 108 Idaho 892, 702 P.2d 930-32 (1985); Afora Springs Coop. Co. v. Brandau, 247 N.W.2d 744, 747-489 (Iowa 1976); N. Illinois Gas Co. v. Energy Coop., Inc., 122 Ill.App.3d 940, 78 Ill.Dec. 215, 226, 461 N.E.2d 1049, 1060 (1984).

. N. Illinois Gas Co. v. Energy Coop., Inc., see supra note 8, 78 Ill.Dec. at 223, 461 N.E.2d at 1059; Portland Section of the Council of Jewish Women v. Sisters of Charity of Providence In Oregon, 266 Or. 448, 513 P.2d 1183, 1188 (1973); Liner v. Armstrong Homes of Bremerton, Inc., 19 Wash.App. 921, 579 P.2d 367, 371 (1978).

. ONG alleges a 30.5% drop in sales since the time the contract was executed.

. Portland Section of the Council of Jewish Women v. Sisters of Charity of Providence In Oregon, see supra note 9; AT. Illinois Gas Co. v. Energy Coop., Inc., see supra note 8, 78 Ill.Dec. at 224, 461 N.E.2d at 1059; Liner v. Armstrong Homes of Bremerton, Inc., see supra note 9.

. Berline v. Waldschmidt, 159 Kan. 585, 156 P.2d 865, 868-69 (1945).

. Groseth Int'l Inc. v. Tenneco, Inc., 410 N.W.2d 159, 167 (S.D.1987).

. Opera Co. of Boston, Inc. v. Wolf Trap Found, for the Performing Arts, 817 F.2d 1094, 1100-01 (4th Cir.1987).

. McGinnis v. Cayton, 312 S.E.2d 765, 775 (W.Va.1984) (Harshbarger, J. concurring).

. Groseth Int'l, Inc. v. Tenneco, Inc., see supra note 13 at 165; N. Corp. v. Chugach Elec. Assoc., 518 P.2d 76, 81-82 (Alaska 1974); Garner v. Ellingson, 18 Ariz.App. 181, 501 P.2d 22-23 (1972).

. Groseth Int'l, Inc. v. Tenneco, Inc., see supra note 13 at 165; Metropolitan Park Dist. of Tacoma v. Griffith, 106 Wash.2d 425, 723 P.2d 1093, 1102 (1986); Murray E. Geldersleeve Logging Co. v. N. Timber Corp., 670 P.2d 372, 375 (Alaska 1983); Portland Section of the Council of Jewish Women v. Sisters of Charity of Providence, see supra note 9, 513 P.2d at 1188; Thornton v. Interstate Sec. Co., 35 Wash.App. 19, 666 P.2d 370, 377 (1983); Liner v. Armstrong Homes of Bremerton, Inc., see supra note 9, 579 P.2d at 370; Gamer v. Ellingson, see supra note 16, 501 P.2d at 23.

. N. Illinois Gas Co. v. Energy Coop., Inc., see supra note 8, 78 Ill.Dec. 224, 461 N.E.2d at 1061.

. Am. Trading and Prod. Corp. v. Shell Int'l Marine, Ltd., 453 F.2d 939, 942 (2nd Cir.1972).

. Medina, McKenzie, and Daniel, “Take or Litigate: Enforcing the Plain Meaning of the Take- or-Pay Clause In Natural Gas Contracts,” 40 Ark.L.Rev. 185, 239 (1986). See also, Halpern, "Application of the Doctrine of Commercial Impracticability: Searching for "The Wisdom of Solomon,'” 135 U.P.L.Rev. 1123, 1130, 1178 (1987), where Professor Halpern calls for "flexible and workable tools rather than all-embracing theories, and a continuing effort to keep emerging doctrines consonant with commercial reality.” Professor Halpern also calls for a meaningful superceding doctrine.

. Two other components, the fixed component and the labor production cost component, were also part of the production charge. Aluminum Co. of Am. v. Essex Group, Inc., 499 F.Supp. 53, 58 (W.D.Pa.1980).

. Id.

. Aluminum Co. of Am. v. Essex Group, Inc., see supra note 21 at 70.

. Id. at 72.

. Smith v. Zepp, 173 Mont. 358, 567 P.2d 923, 927 (1977); Sturgeon v. Phifer, 390 P.2d 727, 729 (Wyo.1964).

. Koppers Co. v. U.S., 405 F.2d 554, 558, 186 Ct.Cl. 142 (1968); Sunflower Elec. Coop., Inc. v. Tomlinson Oil Co., Inc., 7 Kan.App.2d 131, 638 P.2d 963, 969 (1981).

. In re Westinghouse Elec. Corp. Uranium Contract Litigation, 436 F.Supp. 990, 991 (J.P.M.D.L. 1977); In re Westinghouse Elec. Corp. Uranium Contracts Litigation, 405 F.Supp. 316, 318 (J.P. M.D.L.1975); Koppers Co. v. U.S., see supra note 26.

. Florida Power and Light Co. v. Westinghouse Elec. Corp., 597 F.Supp. 1456, 1479 (E.D.Va. 1984).