For nearly a year, the world has battled a pandemic defined as Coronavirus-19 or COVID-19. This virus has caused enormous damage worldwide in terms of human life, health, and economic devastation. This destruction has been acutely felt here in the United States, with the death of hundreds of thousands of Americans and the long-term illness of millions, as well as severe economic loss due to factors beyond the control of those who have been affected.
The COVID-19 pandemic also has had a significant effect on the U.S. legal system. Criminal defendants have been released or had their charges dropped due to delays in processing them through the criminal adjudication system because of the lack of jury trials and the constitutional requirements for speedy trials. Similarly, delays in civil jury trials have created an enormous backlog of cases, denying injured parties from being able to hold persons who have damaged them liable, while also preventing defendants who have been wrongly accused from being able to have their day in court to prove their innocence of any liability. As courts continue to delay jury trials, the backlog is growing exponentially due to certain constitutional requirements for both criminal and civil actions.
Substantively, the pandemic has caused litigants and courts to evaluate the application of various traditional common law principles and existing statutes to the conditions caused by COVID-19, such as the restrictions on business openings, working from home, and slowdowns in the availability of various products. Moreover, the pandemic has led to legislation at both the federal and state levels which has had a substantial effect on the lives of all Americans and does not show any sign of dissipating under the new Biden/Harris administration.
Contract Doctrines
Due to the various restrictions necessary to combat the pandemic, it has become difficult, if not impossible, for many parties to be able to honor the terms of their contracts. The question then becomes which party to the contract will have to bear the loss of failure to perform under the contract – the non-performing party or the party that was relying upon performance? These issues arise in a wide variety of contracts – contracts for goods and services, commercial and residential leases, construction contracts, employment contracts, and many others.
There are various contract doctrines that potentially apply, depending on the jurisdiction in which the contract was made or the choice of law selected for interpretation of the contract.[1] These doctrines include force majeure, impossibility, and frustration of purpose, but each is reliant upon on how they are interpreted under each state’s common (or civil) law. Moreover, some contracts have been affected by local, state, and federal regulations and laws that were adopted in response to the pandemic. In addition, the remedies available to contracting parties for which any of these doctrines, statutes, and case law may apply vary by state.
Force majeure – This is defined as an unexpected and disruptive event operating to excuse a party from a contract, and the application of this doctrine is dependent in most jurisdictions on the language agreed to by the parties at the time of contracting.[2] For example, in Virginia, force majeure clauses are strictly construed and limited to the specific terms of the contract and the specific events described in the force majeure clause in the contract. California takes a more liberal approach to interpret force majeure clauses, and Louisiana, a civil law state, has a code provision that applies the doctrine to all contracts in the state, regardless of whether the contract contains a force majeure provision. The key to most force majeure cases, once it is established that the doctrine applies, is foreseeability – whether the parties to the contract could have reasonably foreseen the event that impeded performance under the contract. In the COVID-19 context, the jurisdiction chosen under the contract can have a profound effect on the application of the doctrine. While a court in one state may require that the applicable clause specifically mention a disease or pandemic to trigger the clause, another may consider a reference to government action or “act of God” as sufficient to invoke the provision as a defense to a breach of contract claim.
Impossibility – This is a doctrine under which a party to a contract is relieved of their duty to perform when performance has become impossible or impracticable through no fault of the non-performing party. A key to the impossibility doctrine is that the impossibility of performance must be objective rather than subjective. In the COVID-19 context, the fact that many state and local governments required businesses to close in order to stop the spread of the virus provides a basis for an impossibility defense.
Frustration of Purpose – This common law doctrine excuses a promisor in certain situations when the objectives of the contract have been utterly defeated by circumstances arising after the formation of the contract through reasons beyond the party’s control. While there are few cases invoking this doctrine, this court-developed doctrine has been applied in only limited jurisdictions with varying degrees of success even before COVID-19.
No matter which of these doctrines are asserted, each may be subject to remedies that are more limited than merely invalidating the contract. Depending on the circumstances of the effect of the pandemic on a contract, the relief that may be provided may be limited to excused delay in performance of the contract or monetary relief in the form of setoffs for any breach.
Each of these doctrines has a varying application to a wide range of contracts, which an experienced litigator can evaluate based upon the specific contracts and facts at issue in any dispute.
Other Legal Impacts of COVID-19
The COVID-19 crisis has prompted substantial executive and legislative responses from the states and the federal government, which have impacted a wide variety of legal relationships – from landlord/tenant to the repayment of student loans to employment and unemployment. Each of these areas requires expertise and constant monitoring in the fast-changing environment in which we currently find ourselves, especially with the advent of a new Biden/Harris administration on the federal level.
Fletcher Heald & Hildreth, PLC attorneys are monitoring the COVID-19 situation as it unfolds and can assist our clients in dealing with this crisis regarding their legal obligations, potential contractual liabilities, and the effect of legislative actions in a range of different practice areas—from their mainstay telecommunications practice to commercial litigation, contract law, commercial real estate, cybersecurity, and labor and employment matters. We stand ready to assist our clients in these difficult times.
[1] Many contracts have clauses that require that a contract be interpreted under the law of a certain jurisdiction, despite what a forum’s conflicts law may otherwise require. Most courts will give effect to the jurisdiction’s law that is chosen by the parties as reflected in the contract.
[2] In certain limited areas, force majeure provisions may also be contained in or affected by statutory enactments. See Federal Acquisition Regulation Section 52.249-14 (government contracts); Va. Code § 15.2-2108.19 (Virginia’s statute governing cable systems).
