No March Madness? Postponement of the Olympics, NHL and NBA seasons? This would have been inconceivable three months ago but is the reality of today. In the scheme of things, the cancellation of events is a minor inconvenience compared to the global impacts of COVID-19. However, how businesses will handle contractual issues and disputes regarding cancellations related to COVID-19 is an issue worth examining. The answer, as it is oftentimes per every law school professor, is “it depends.”
While parties are generally expected to perform their contracts, there are tailored legal excuses for non-performance. One of these legal excuses is force majeure, which discharges or defers performance in whole or part due to unanticipated and uncontrolled events. Force majeure clauses are generally explicitly contained within contracts and their scope depends on the express terms.
The reasonable expectation of the parties, foreseeability of the event giving rise to the cancellation and whether the event is beyond control of the parties are all considered as to whether a force majeure clause excuses performance. States continue to enact strict precautions and regulations regarding COVID-19, and it is notable that acts of government (such as statewide “stay-at-home” orders) are legitimate grounds to excuse performance.
Smaller events and contracts, which may not have contemplated a force majeure clause, also may have legal excuses for non-performance. The impossibility of performance may discharge a contractual duty where, after a contract is made, a party’s performance is made impossible without his fault. Numerous legal authorities, including the Restatement (Second) of Contracts, Uniform Commercial Code and CISG, weigh in on and support the impossibility of performance as a lawful discharge of duty. Significantly, the unanticipated event that gives rise to a claim of impossibility must make the contract truly impossible to perform. Substantial increase in cost or decrease in revenue generally will not excuse performance.
The impracticability of performance may also excuse a party from performing a contractual duty if performance would cause extreme and unreasonable difficulty. As opposed to impossibility, impracticability is subjectively interpreted. The jurisdiction overseeing a particular contract dispute must be evaluated prior to utilizing this defense as not all states recognize the doctrine of impracticability.
It is more likely that disputes will arise based on the cancellation of small-scale events such as a wedding or conference. Here, issues can develop based on the cancellation by the hosts or attendees and can be resolved in a variety of ways. The parties can agree to temporarily postpone an event, amend the contract or cancel the contract and allocate deposits. Of course, the parties can always take their dispute to court.
How businesses will handle contractual issues and disputes regarding force majeure, impossibility and impracticability will depend on the particular business and contract. Larger businesses, such as professional sports teams and arenas, may take a loss in hopes of maintaining goodwill by paying employees whose jobs are impossible or impracticable to perform. Public influence, economic impact, and ultimately contracts will impact how businesses proceed. While under the time and circumstances it is likely that parties would agree to void or postpone contracts where possible, this is a stark reminder that contracts and words matter.