In the current COVID-19 pandemic, our society is preparing not only for the boredom that accompanies Stay at Home, Shelter in Place, and other pseudo-quarantines of indeterminate length, but also for the business ramifications which follow. Certainly 2020 will be a year filled with cancelled events and closed “non-essential” businesses. While many contracting parties have thus far shown remarkable flexibility to the change in circumstance, inevitably disagreements will occur. Before they do, parties should dust off their contracts and evaluate their rights, especially as they relate to the legal concepts of force majeure, impracticability/impossibility of performance, and frustration of purpose.
Force Majeure
Force majeure is a clause in many contracts that excuses performance for unforeseen events “which human vigilance and industry can neither foresee nor prevent.”[1] Force majeure is typically a creature of the contract, as it is not implied in common law. Contractual provisions will typically identify a laundry list, although not exhaustive, of triggering events giving rise to force majeure such as: acts of God, including hurricanes, tornados, floods, fires, earthquakes; other events including war, rebellion, acts of terrorism; acts of governmental authorities such as condemnation, and changes in laws and regulations; and strikes and labor disputes. When courts construe force majeure clauses, they generally look at: (1) the language in the force majeure clause; (2) evidence that the force majeure event was unforeseeable; (3) proof that non-performance was caused by the force majeure event; and (4) evidence that the event of force majeure was so severe that the contractual obligations cannot be performed. A careful reading of the force majeure clause will tell the parties what the rules are when a party can’t perform.
Impracticability and Impossibility
Where a contract does not include a force majeure provision, related common law concepts of impracticability and impossibility of performance may still excuse performance. Impracticability has been codified in the sale or lease of goods context by the Uniform Commercial Code.[2] The argument that it’s impractical or impossible to perform can’t be mere difficulty. The Second Restatement of Contracts defines impossibility as “not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved.”[3]
Frustration of Purpose
A related common law concept, frustration of purpose, will excuse contract performance if three conditions are met: “(1) The party’s principal purpose in making the contract is frustrated; (2) without that party’s fault; (3) by the occurrence of an event, the nonoccurrence of which was a basic assumption on which the contract was made.”[4] For instance, if the whole point of the contract is something such as a convention or trade show where meeting people face to face is the point of the contract, the inability to have such gatherings frustrates the purpose of the contract.
In all cases, a party who is having difficulty performing should carefully document the circumstance necessitating their non-performance, and promptly notify the other party of their intended breach of performance. Consultation with an attorney at this juncture will help shape the messaging so that the notice correctly identifies the legal rationale for non-performance, and so that notices are properly delivered as specified in the contract. Even if the contract does not call for something in writing, it would be careless, if not foolish, for a party breaching a contract not to reduce the rationale for breach to writing.
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[1] State ex rel. Nelson v. Dist. Court, 138 Minn. 260, 164 N.W. 917 (Minn. 1917).
[2] See e.g., Minn. Stat. Section 336.2-615 and 336.2A-405.
[3] Second Restatement of Contacts, Section 254.
[4] Metro. Sports Facilities Comm’n v. Gen. Mills, Inc., 460 N.W.2d 625, 630 (Minn. Ct. App. 1990), aff’d, 470 N.W.2d 118 (Minn. 1991) quoting National Recruiters v. Toro Co., 343 N.W.2d 704, 707 (Minn.App.1984).