With the pandemic completely altering the way we live, there are likely to be many parties to contracts turning to the “force majeure” provision of their contracts — or else, if they have no such provision, turning to similar, common law defenses.
Force majeure is typically a provision that says if, by some major force, a party to a contract is prevented from doing what they’re supposed to do, then that party is forgiven and not required to carry out the obligations. One would think that the onslaught of COVID-19 would give everyone a contractual exit, but not all so-called “boilerplate” terms are created equal — and they now have become much more important than anyone thought they would be.
For example, since the SARS outbreak of 2002, many insurance policies with force majeure clauses expressly disclaim epidemics and pandemics. That double-edged sword may be a surprise to the insured.
Where would-be litigants lack a favorable contract, they might turn to the more general common law. One common law defense against an agreement being enforced is frustration of purpose. It says that the intervening events substantially frustrate the principle purpose of what the parties reasonably expected from the agreement. The problem is that “frustrate” can be interpreted in many different ways. Generally, it means something more dire than an inability to make the amount of money that you were hoping to make. Similarly, the common law defense of impossibility means that under the circumstances, the contract cannot be performed. Again, what’s impossible is up to interpretation: perhaps a building’s collapse makes the ground floor’s use as a restaurant impossible, but a pandemic’s decimating the restaurant’s clientele just makes it difficult to pay rent — not impossible.
When the dust settles, contracts that were entered into before COVID-19 are going to be the subject of litigation. Over and over again, one side will be wanting to enforce a contract that seems — and may be — impossible to the other party.
Clients should take stock and go over their contracts with the attorney of their choosing, and start providing a paper trail that cogently argues why the agreements should be enforced — or, if you’re on the other side, why the agreement should be excused from being enforced. Lawsuits like these are not going to be resolved for some time, and starting now ensures the urgency of this situation won’t be forgotten. In six years — the statute of limitations in New York for breach of contract — we may have learned some important lessons.
