Coronavirus (COVID-19) and Contracts

Due to the Coronavirus COVID-19 Pandemic, many people and entities are unable to fulfill their contractual obligations (such as event contracts, travel contracts, work contracts, and even rent/leases). Further, many people are worried about their ability to fulfill contracts in the near future. Consequently, one of the more common legal questions raised by this COVID-19 Pandemic is:

What are my contractual obligations during this pandemic?  

This article will outline a few different legal theories (specifically under Maryland and DC law) regarding the requirements (or lack thereof) to fulfill any or all existing or future contractual obligations during a National Emergency such as the Coronavirus COVID-19 Pandemic.

Breach of Contract

Breach of contract is the specific legal cause of action in which one party sues a another party for that the failure to perform an obligation under a specific contract. In Maryland and Washington DC, a contract is simply an agreement that creates a legally-enforceable obligation between different parties, and a contract can be either oral or written (although some types of contracts must be written to be enforceable). If a contracting party fails to fulfill one of its contractual obligations, then the other contracting party can bring legal action to protect their rights under that legally-enforceable agreement. However, there do exist certain legal theories (as outlined below) which can – in certain circumstances – excuse a party from the performance of its contractual obligations.

Impossibility of Performance / Frustration of Purpose

The legal doctrines of Impossibility of Performance and Frustration of Purpose can – in certain circumstances – excuse a party from performance of its contractual obligations. It may be possible for the doctrines of Impossibility of Performance and Frustration of Purpose to be utilized by a contracting party to excuse a party’s performance in light of a major event, such as the COVID-19 Pandemic. As one court has explained: “The doctrine of impossibility relieves non-performance only in extreme circumstances.” (See East Capitol View v. Robinson). Under the doctrine of legal impossibility, under Maryland law, “[i]f a contract is legal when made, and no fault on the part of the promisor exists, the promisor has no liability for failing to perform the promised act after the law itself subsequently forbids or prevents the performance of the promise. (See Equitable Trust v. Towson Manor). In order to succeed and obtain a valid contract excuse under this “impossible” theory, performance under the contract must be truly and accurately objectively “impossible.” (See Levine v. Rendler). The Second Restatement of Contracts explains the theory directly: “[I]f the performance remains practicable and it is merely beyond the party’s capacity to render it, he is ordinarily not discharged” from the contract. Section 261 cmt.e (1981). Similarly, the principle underlying the Frustration of Purpose doctrine “is that where the purpose of a contract is completely frustrated and rendered impossible of performance by a supervening event or circumstance, the contract will be discharged.” (See Harford County v. Town of Bel Air). And the party seeking excuse from a contract during the COVID-19 Pandemic under these theories must prove “a real impossibility and not a mere inconvenience or unexpected difficulty.” (See East Capitol View v. Robinson). Under these legal principles (which are both applicable in Maryland and Washington, DC), a party may be able to excuse contractual performance as a result of the Coronavirus COVID-19 Pandemic. Certain activities (such as school, gatherings, and events) have been ordered by the government to stop. In fact, Maryland Courts are mostly closed, DC Courts are mostly closed, and the IRS has even already moved taxpayers 2020 payment and filing obligations by 90 days!  As such, certain activities have truly been “rendered impossible” due to COVID-19.  Nonetheless, these contract excuse doctrines are very fact specific and courts will look very carefully at the parties’ contract terms and the actual events related to the Coronavirus COVID-19 Pandemic to determine if the doctrines of Impossibility of Performance or Frustration of Purpose will apply.

Act of God / Force Majeure Contract Clauses

The inclusion of an “Act of God” or “Force Majeure” clause in a contract can – in certain circumstances – excuse a party from performance of its contractual obligations. It may be possible for a “Force Majeure” clause in a current contract to excuse a party’s performance in light of the COVID-19 Pandemic. In a contract, a “Force Majeure” clause is a specifically worded provision that can, in certain circumstances, excuse a party’s contract performance due to certain “acts of god” or other uncontrollable acts.  However, the actual language in the contract must be specific and must directly allow the parties to the contract to understand what they are agreeing to. In most jurisdictions, including Maryland and DC, as part of a trial court’s analysis of an “act of god” or “force majeure” clause, courts will look directly at the language in the contract at issue that the parties “specifically bargained for in the contract to determine the parties’ intent” regarding whether the “Act of God” in question truly excuses performance concerning whether the event complained of excuses performance.” (See National v. Hyatt Regency Washington). An “Act of God” or “Force Majeure” clause is “not intended to buffer a party against the normal risks of a contract;” rather these contract provisions are intended to excuse the contracting party “from the consequences of the risk he expressly assumed would nullify a central term of the contract.” (See Langham-Hill Petroleum Inc. v. Southern Fuels Co.).  As a result, an “Act of God” or “Force Majeure” clause could – if properly drafted — especially if it includes “National Emergencies” or disease pandemics, allow a party to a contract to legally excuse performance as a result of the COVID-19 Coronavirus Pandemic.

Ultimately, a disease pandemic such as the COVID-19 Coronavirus Pandemic, in which a National Emergency has been declared, could in fact yield to one of these contract doctrines (Impossibility of Performance, Frustration of Purpose, “Act of God” or “Force Majeure” Clauses) excusing contract performance (at least under Maryland and DC law). However, before a contracting party decides to not fulfill their obligations they should ensure that doing so would not have any adverse consequences.

If you would like to speak to Adam Van Grack or one of our firm’s litigation attorneys or contract attorneys about a contract-related matter (whether or not related to the COVID-19 Coronavirus Pandemic), Mr. Van Grack and our Maryland and Washington DC contract lawyers will review your matter and the contract of concern to assist in evaluating the parties’ obligations (and if an excuse of performance is possible). Our Maryland and Washington DC contract litigation legal team guide our clients on the best action for an efficient resolution. Our firm’s contract attorneys have handled contract disputes in Montgomery County Circuit Court (at Rockville, MD), DC Superior Court, Baltimore County Circuit Court (located in Towson, MD), Frederick County Circuit Court, Howard County Circuit Court (at Ellicott City, MD), Prince George’s County Circuit Court (at Upper Marlboro, MD), the Montgomery County District Court, and the Baltimore City Circuit Court. Contact Mr. Van Grack or our other attorneys at (301) 291-7156 regarding a contract or excuse of performance consultation today at our Maryland Offices (Rockville, Bethesda, Montgomery County).