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Force Majeure, Frustration of Purpose and Impracticability Contract Obligations During a Pandemic

Apr 8, 2020

Attorney Ross CurnowContract Obligations During a Pandemic

 

Ross Curnow | Hopkins & Huebner, P.C. | Des Moines Office

We are living in uncertain and challenging times.  This phrase has been uttered so much lately it’s almost a cliché – except the idea of a cliché doesn’t apply in times of genuine crisis.  The world and all of our lives sits idle as we battle an invisible enemy.
That enemy doesn’t care about our routines, hobbies, fitness, and most importantly our need to be together.  Nor does it care about our livelihoods and the contracts that frame the understanding and obligations of our business and personal relationships. 
Every new protective order enacted by our leaders further prevents or limits businesses and individuals from operating, handling costs like rent and utilities, and honoring contractual obligations in general. 
However, strange times call for strange measures.  Historically, contract law has resorted to three separate doctrines purposed toward excusing a party’s performance under extremely unusual circumstances outside of that party’s control.
Force Majeure
Photo depicting a global pandemicThe first is the doctrine of Force Majeure.  Sometimes referred to as act of god, Force Majeure is a contract remedy that will excuse a party’s obligations under a specific range of circumstances.  By contract remedy, I mean the contract itself must include a Force Majeure clause or language that specifically lays out situations that will trigger its application.  If there is no such clause or language in the contract, then a party can’t claim Force Majeure in order to excuse its performance, and may very well still be obligated under the contract. 
Here’s a common example of a Force Majeure clause:
Neither Party shall be liable or deemed to be in default for any delay or failure to perform any act under this Agreement resulting, directly or indirectly, from acts of God, civil or military authority, acts of public enemy, war, accidents, fires, explosions, earthquake, flood, strikes or other work stoppages by either Party’s employees, or any other similar cause beyond the reasonable control of such Party.
Since this is a contract remedy, courts interpreting a contract dispute involving nonperformance will look to the plain language of the Force Majeure clause.  Because the clause here doesn’t specifically list “pandemics” or “sickness” as a justified circumstance, the party claiming Force Majeure may have a more difficult time proving its case for not performing under the contract.  It ultimately comes down to the interpretation of the presiding court.
Let’s imagine that the party’s argument for Force Majeure based on the clause above gets rejected by the court.  Fortunately for that party, they’re not entirely out of luck.  If the Force Majeure contract remedy isn’t an option, an impacted party can also use the common law remedies of Frustration of Purpose and Impracticability.  Since these are common law remedies, the impacted party can claim them even in the absence of particular language in the contract at issue.
Frustration of Purpose
Frustration of Purpose provides that where, after a contract is made, a party’s main purpose is substantially frustrated without his or her fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his or her performance is excused.  The key points here are that the frustrated purpose was the primary purpose of the party in making the contract and the frustration is substantial.  If the frustrating event causes an inconvenience to the party that doesn’t totally derail its purpose and ability to perform, then the party is still bound to perform its obligations to the best extent possible. 
Though similar to Frustration of Purpose, the doctrine of impracticability provides that where, after a contract is made, a party’s performance is made impracticable without his or her fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his or her performance is excused.  You can see that the primary difference here is that the party’s performance is impossible or impracticable due to the unanticipated event.
Photo of person signing a contractContract Obligations and Cancellation of Events due to COVID-19
The COVID-19 pandemic is almost certainly an event that triggers any number of these contract doctrines.  Since its inception, we’ve seen cancellations of major events such as March Madness, South by Southwest, and the 2020 Summer Games in Tokyo.  These cancellations create a ripple of contract issues for not only the major organizers and participants but also the multitude of vendors and service providers that rely on these events for their business.  If compromises and alternative resolutions can’t be reached, we are in all likelihood about to see the greatest influx of contract cases involving these excuse doctrines in history. 
If your business or you personally are having difficulty meeting your contract obligations because of the COVID-19 outbreak, consulting with an experienced contract attorney can make all the difference in determining your options and finding a solution.    
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