Contract obligations during the Covid-19 pandemic

The current Covid-19 pandemic is causing a great deal of uncertainty. Fact and circumstances seem to be changing on an almost daily (if not hourly) basis. Not only is that affecting our health, wellbeing, and daily lives, but it is also affecting commerce. Businesses are continuously monitoring the situation and adapting in order to stay in business and support employees and customers.

Many relationships between businesses and their customers and suppliers are governed by contracts. And many questions will arise about people’s obligations under contracts given the challenges we are facing with this pandemic. Does a supplier still need to fulfill its contract obligations? Must a business still fulfill its contract obligations to its customers? Must a customer still fulfill its obligations.

The first place to start is with any written contract that may be in place. Contracts often contain provisions allocating risk and uncertainties between the parties. One way to do that is through “force majeure” clauses.

Essentially, force majeure clauses allow a party to not perform its obligations under the contract if certain specified events occur. Usually those events are unpredictable things or things we might consider acts of God such as natural disasters, labor strikes, or wars. Pandemics may or may not be listed as things that excuse performance. So the contract’s language must be carefully reviewed to determine if the Covid-19 pandemic fits within the events contemplated in the force majeure clause. If it does, performance may be excused.

It will be up to the party claiming that it does not have to perform its obligations to prove that the current pandemic fits within the contract’s force majeure clause. There are not many reported cases in Washington dealing with force majeure clauses. Whether a force majeure clause allows a party to not perform a contract will depend on the wording of the clause in the contract, the court’s interpretation of it, and whether the court determines if this pandemic fits within the clause.

If a written contract does not contain any force majeure clause or there is no written contract, there are several common law legal doctrines that may excuse performance of a contract.

If performance of a contractual obligation is impossible or impracticable, the court may excuse performance. This doctrine applies to strict impossibility of being unable to perform what the contract requires. The doctrine also applies in situations of impracticability arising from extreme and unreasonable difficulty, expense, injury, or loss. The event causing the inability to perform must be fortuitous and unavoidable. A party’s subjective belief that performance is not possible is not enough. Also, simply because a contract becomes more expensive to perform does not excuse a party’s performance.

It doesn’t matter that the event/fact rendering performance impossible arose after the contract was entered or existed at the time the contract was entered into, so long as the parties did not know of the event/fact.

A temporary situation that causes performance to be impossible may suspend a party’s duty to perform, but it does not discharge the duty entirely unless performance after the situation is resolved would be materially more burdensome than if there had been no impossibility. Also, where only part of a party’s performance is impossible, the party may still be obligated to perform the rest of its obligations.

It will be on the party seeking the excuse of their performance to prove that performance was impossible or impracticable.

It is unclear how courts will apply these doctrines to the circumstances caused by the Covid-19 pandemic. Each case will depend on its particular contract and the specific facts and circumstances of the case.