Introduction
Contractual relationships thrive on certainty. Yet the far-reaching scope of tariffs imposed and deferred over the last several months has raised concerns that businesses may not be able to perform their own contractual obligations or depend on others to perform theirs. Drafting contracts and closing deals in progress have already been impacted. And recent lawsuits by at least 13 states and several U.S. small businesses are challenging tariffs imposed between February and April 2025 as unauthorized.
In the current volatile environment, provisions regarding pricing and forecasting, amendment, termination, alternative dispute resolution (ADR), and force majeure are likely heavily negotiated and front and center in any contract dispute. For a variety of reasons discussed below, tariffs are unlikely to be a basis for allowing a contracting party to avoid contractual obligations. But as the federal government's tariff policy continues to evolve, there are steps that businesses can take now to mitigate their impact and plan for future disputes related to pricing, operations, and supply chain, as well as to assist them in current contracting efforts in a dynamic environment.
Key Contractual Concepts
Litigation involving nonperformance in an uncertain economic environment commonly involves one or more of four key contract or common law doctrines:
- Force majeure is a bargained-for contractual term that can excuse delay or non-performance when unforeseen circumstances beyond the parties' control arise. Courts typically interpret such clauses narrowly and do not give them expansive meaning.
- Impossibility is a common law defense that may apply if an unexpected event occurs, the non-occurrence of that event was a premise of the parties' agreement, and the unexpected event made performance under the contract either impossible or economically impracticable. However, economic hardship, in and of itself, is unlikely to render performance under a contract impossible.
- Impracticability is also a common law defense that may apply if an unforeseen event not caused by one of the parties makes performance excessively burdensome, inordinately more difficult, or extremely expensive.
- Frustration of purpose is another common law defense that may apply if the principal purpose of the contract is substantially frustrated without fault by the occurrence of an unforeseen event.
Changes in Economic Policy and Commercial Contract Litigation ' "A Deal Is a Deal"
Courts have not looked favorably upon defenses to breach of contract claims based on the impacts of government economic policy, including tariffs or sanctions. Instead, courts typically have followed longstanding contract interpretation principles, particularly among sophisticated parties, in rejecting contract defenses such as commercial impracticability, impossibility, frustration of purpose, and force majeure.
For example, in Chainworks, Inc. v. Webco Indus., Inc., a commercial broker of steel tubing sued its supplier for having unilaterally raised prices as a result of revoked steel tariffs and prevailed despite the significant financial impact of the change in tariff policy.1 In short, the court accepted the broker's straightforward contract argument: "a deal is a deal."2
In Sage Realty Corp. v. Jugobanka, D.D., the Southern District of New York...
