Impossibility of Performance and Frustration of Commercial Purpose
The doctrine of impossibility of performance only excuses performance under the most extreme circumstances. In general, courts require a breaching party to demonstrate performance was made impossible by an unforeseen event that could not have been contemplated by the parties when negotiating the terms of a contract.
This defense will likely be used by suppliers who are unable to supply finished goods or raw materials due to a disruption in a supply chain, a venue that must cancel an event due to a government order that they close the facility or a contractor that is unable to complete a project on time due to a combination of multiple restrictions resulting from COVID-19.
Breaching parties should be mindful that the doctrine cannot be used as a defense for breaches resulting from difficulty of performance or financial hardship. Further, parties may be required to partially perform, if practicable or resume performance when normal business operations resume.
A defense premised as frustration of commercial purpose requires a breaching party to demonstrate that performance of the contract would be possible, but the purpose of the contract is defeated. This may apply to a situation where a commercial space is leased to a tenant to open a restaurant. With government restrictions forcing restaurants to close, the tenant could still lease the space but the purpose of the contract is defeated.
Summary of Breach of Contract Defenses
A properly worded contract combined with the appropriate contractual defenses may shield a breaching party from an adverse judgment and potentially large damage awards. However, contracting parties should frequently communicate with counterparties to provide notice of an anticipated breach, exercise diligence in attempting to mitigate damages and document all efforts.
Adequate notice of a potential breach allows both suppliers and buyers to mitigate their damages by providing the opportunity to decrease production, locate alternate suppliers and prevent further supply chain disruptions to other parties within the stream of commerce.
Personal Injury Claims
Certain industries can expect personal injury claims from individuals alleging businesses failed to adequately protect them from exposure to COVID-19. These claims will be based in negligence. Ultimately, a plaintiff will have to prove that a defendant breached a duty of reasonable care which caused COVID-19. Specifically, the court will analyze the standard of care, defined as the attention, caution and prudence that a reasonable person in similar circumstances would exercise.
Recently, a wrongful death lawsuit was filed by the family of a former employee who allegedly contracted COVID-19 from other employees. The lawsuit claims Wal-Mart failed to take adequate precautions to protect employees from exposure and further failed to warn employees that other employees had tested positive COVID-19.
Businesses should ensure that they are following federal and state guidelines related to public health and workplace safety to prevent contagion and document these efforts in order to refute allegations that they have breached the standard of care.
State Executive Orders
As of May 2020, multiple states have enacted executive orders to protect health care employees, staff, contractors and facilities from civil liability for injuries or death related to COVID-19. These executive orders will apply retroactively to claims occurring at the beginning of March, when the states declared a public emergency.
However, while the executive orders were designed to prevent claims against healthcare workers, facilities such as hospitals and nursing homes that had instances of negligent care prior to the date a public emergency was declared will not be immune from liability.
Further, hospitals and state health departments can expect an uptick in litigation by health care workers who were not provided adequate personal protective equipment or training to protect them.
Courts will be presented with unusual fact patterns and creative legal analysis by ambitious claimants in addition to those attempting to recover from significant economic losses.
Businesses should be mindful of potential claims, regularly communicate with counterparties, adhere to federal and state guidelines related to the pandemic and remain well informed of the legal standards in their jurisdiction regarding potential legal exposure and defenses.