Why might those entering into contracts be worse off in the long run if the courts increasingly accept impossibility of performance as a defense?

The doctrine of impossibility of performance is applied only when the parties could not have reasonably foreseen, at the time the contract was formed, the event or events that rendered performance impossible. In some cases, the courts may seem to go too far in holding that the parties should have foreseen certain events or conditions, thus precluding the parties from avoiding contractual obligations under the doctrine of impossibility of performance.

Actually, courts today are more likely to allow parties to raise this defense than courts in the past, which rarely excused parties from performance under this doctrine. Indeed, until the latter part of the nineteenth century, courts were reluctant to discharge a contract even when performance appeared to be impossible. Generally, the courts must balance the freedom of parties to contract (and thereby assume the risks involved) against the injustice that may result when certain contractual obligations are enforced. If the courts allowed parties to raise impossibility of performance as a defense to contractual obligations more often, freedom of contract would suffer.