As America fights through a global pandemic and the resulting economic impact, businesses work toward recovery. Workers are slowly returning to their jobs as companies take on new work again. Part of recovery will center around reviewing existing business contracts.
Because of the pandemic, an individual may find themselves in breach of a work contract, unable to complete a job. Whether a roofer had to cancel a job halfway through or a barbershop is behind on a loan payment due to the temporary shutdown, many courts will deliberate whether COVID-19 excuses a breach of contract.
Legal defenses for a breach of contract
Parties in breach of contract due to the pandemic may have to defend these breaches in court. To do so, their lawyers may attempt to invoke a few legal defenses:
- Impossibility of performance: A standard in legal doctrine, this defense excuses a breach of contract if an event rendered performance impossible. Courts rarely apply the doctrine as the law prefers to adhere to contract terms rigidly. Legal precedent exists that negates this doctrine if knowledge of the potential impossibility existed before signing.
- Impracticability of performance: Like the impossibility of performance doctrine, impracticability of performance covers conditions that make the performance of a contract so unexpectedly difficult that performance is unconscionable. This doctrine may apply to some contracts, as government shutdown orders that limit business performance cause those businesses to generate less revenue. Without reliable income, these businesses may not be able to make payments on loans or mortgages.
- Frustration of purpose: Related to both above doctrines, the frustration of purpose doctrine exists for conditions that pop up after signing a contract that impedes its performance. Performance may still be possible, but unexpected events destroy the purpose of the contract, perhaps delaying performance too long or making execution too expensive.
- Force majeure clause: Standard in many contracts, a force majeure clause lists specific events, or acts of God, that excuse performance. The listed events differ upon the nature of the business but can include hurricanes, floods, power outages, strikes, war — very few list pandemics. Without the exact terminology, courts are unlikely to entertain such a defense.
The stability of contract law
Business contracts built the foundation of the American economy, so courts are hesitant to award breach defenses. Individuals with questions about potential options for a contract in breach can contact a local attorney familiar with contract law.