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Impossibility of Performance and the Commercial Frustration During COVID-19

Can the COVID-19 pandemic excuse performance of a contract?

Impossibility of Performance and the Commercial Frustration During COVID-19

COVID-19 is having a once in a generation impact on businesses and their operations. During this dynamic and uncertain time, business owners may be faced with no choice but to breach a contractual obligation, or be on the other side of a broken contract. Can the COVID-19 pandemic excuse performance of a contract? The answer may depend on the language of the contract, but also on the applicability of legal doctrines such as impossibility of performance and commercial frustration.

What is Impossibility of Performance?

A party to a contract cannot avoid a contractual duty merely because performance would be more expensive or more difficult than contemplated when the contract was made. However, in some cases a defense of impossibility may excuse performance when it would result in an excessive and unreasonable difficulty or expense. A party invoking impossibility of performance must show that reasonable efforts were made to overcome the obstacles preventing performance.

In addition to extreme hardship, impossibility of performance may also be based on a change in the law. For example, the passage of a new statute or ordinance that makes a previously agreed upon contractual duty illegal. However, like with extreme hardship, laws or other government acts that only make performance more expensive, unprofitable or more difficult do not excuse a party’s performance of a contract.

Depending on the facts of the case, impossibility may be temporary or permanent, and likewise, excuse of performance based on impossibility may justify a temporary suspension in performance, or a permanent discharge of performance.

What is Commercial Frustration?

Similar to impossibility, the doctrine of commercial frustration applies when performance remains possible, but the fundamental reason of both parties for making a contract has been frustrated by an unanticipated circumstance, substantially destroying the value of the performance.  The frustration must be so severe that it cannot be considered as a risk taken by the parties in making the contract. In such cases, performance may be excused.

Also, in these cases, a court must examine the circumstances surrounding the making of the contract, and determine if the risk of the event causing the commercial frustration was reasonably foreseeable. If it was foreseeable, the contract should have addressed it, and a court may find that the parties assumed the risk of the event in making their contract.

Getting Legal Help

Brown & Charbonneau, LLP represents individuals as well as large and small companies in cases involving all forms of contractual disputes. If you are involved in a contract dispute, or would like to learn about your rights and how to protect your business, we can provide you with the information you need. Contact us or call today at 714-406-4397 to schedule a consultation and learn more about how we can help you.

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