Inability to perform: Overview, definition, and example
What is inability to perform?
Inability to perform refers to a situation where a party (individual or business) is unable to meet the terms, conditions, or obligations outlined in a contract or agreement. This can be due to various factors, such as illness, financial hardship, lack of resources, or external circumstances beyond control (e.g., natural disasters, regulatory changes). Inability to perform can apply to both personal and business contexts, and it typically leads to a breach of contract unless the situation is covered by specific clauses like force majeure (unforeseeable circumstances that prevent someone from fulfilling their obligations).
For example, if a supplier agrees to deliver products to your business by a certain date but cannot do so due to an unforeseen factory shutdown, this would be considered an inability to perform.
Why is inability to perform important?
Inability to perform is important because it affects the ability of businesses to fulfill contractual obligations and can lead to legal disputes, reputational damage, or financial losses. Understanding the causes and consequences of inability to perform is crucial for both businesses and clients. In many contracts, provisions related to inability to perform, such as force majeure clauses, allow for temporary relief or termination of the agreement under specific conditions.
For SMBs, identifying and addressing the potential for inability to perform can help mitigate risks and protect the business from unwanted liabilities or legal action in case things go wrong.
Understanding inability to perform through an example
Imagine your business has a contract with a contractor to complete a construction project. Due to unforeseen financial difficulties, the contractor is unable to provide the necessary resources or labor to finish the project on time. This would be considered an inability to perform, and the contractor may need to inform your business and possibly seek an extension or renegotiate the terms of the agreement.
In another example, if your business enters into a contract to deliver goods by a specific date, but a natural disaster prevents you from obtaining the raw materials necessary to fulfill the order, this could also be seen as an inability to perform.
An example of inability to perform in action
Here’s how inability to perform might be referenced in a contract or agreement:
“In the event that either party is unable to perform their obligations due to unforeseen circumstances, such as illness, natural disaster, or government regulations, the affected party must notify the other party immediately and work together to find a reasonable solution. If performance cannot be resumed, either party may terminate the contract without penalty.”
Conclusion
Inability to perform refers to a situation where a party cannot fulfill their contractual obligations due to various reasons, including external factors like illness, financial issues, or natural disasters. For SMBs, understanding the implications of inability to perform and incorporating relevant clauses (like force majeure) in contracts can help protect the business in case of unforeseen disruptions. It’s important to communicate openly with stakeholders and find workable solutions to minimize risks and prevent legal conflicts.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.