There is a legal epidemic that is keeping pace with the COVID-19 epidemic: breach of contract.
That includes contracts that are contained in a 100-page document, an email chain, a napkin or just spoken words. There are a lot of contracts out there that are getting broken because of the extraordinary events of the last several months.
If you are the one doing the breaking, then you may just have a defense to liability. Here are a few of the more common defenses.
Force Majeure: This is a specific clause that is included in some contracts to remove liability for natural and unavoidable catastrophes. If force majeure is not specifically provided for in the contract, then it does not provide a defense to a default in the contract. Even if there is a force majeure clause, there will still be questions about whether it specifically lists a pandemic, if it contains a catch-all provision, and if there is a link between the default and COVID-19.
Acts of God: Sometimes an event that is put down to an Act of God can be a defense to liability for a breach of contract. While normally an Act of God is considered to be from nature – such as a tornado, flood or earthquake – it could be argued that a pandemic like COVID-19 is also an Act of God.
One key to a successful argument will be that the default was solely due to unavoidable consequences from COVID-19 and not the fault of the person asserting it.
Commercial Impracticability: While this may be a popular defense, it is always difficult to prove because economic hardship or increased costs of performance, alone, are not enough. This defense is when a party’s performance is made impracticable without his fault by the occurrence of an unanticipated event. Acceptable reasons to support the defense include death or incapacity of a person necessary for performance, destruction or deterioration of a thing necessary for performance and prevention by a government regulation. Commercial impracticability is sometimes called frustration of purpose or impossibility of performance.
Uniform Commercial Code Provisions: If the contract involved sale or lease of goods, then UCC Sections 2.615 and 2A.405 may be your ticket home. These are specific statutes that involve a variation of commercial impracticability.
If these defenses don’t fit the bill, then there are always the oldies but goodies of mutual mistake, failure of consideration and illegality, to name just a few.
Note that none of these arguments are foolproof. Under a force majeure clause, for example, you may have a required time period to give the other party a written notice. However, an improperly drafted or untimely notice may give the other side a defense of anticipatory repudiation, which will give the other party the right to rescind the contract or treat your notice as a breach of contract.
In these times of uncertainty, you can take hope from the one thing that is certain: COVID-19 is going to spawn lawsuits for years to come.
