Contracting Coronavirus: COVID-19 as an Excuse for Nonperformance of a Contract

“Corona Virus” by danielfoster437 is licensed under CC BY-NC-SA 2.0 

Nicholas Eaton, Associate Member, University of Cincinnati Law Review

I. INTRODUCTION

COVID-19 (the coronavirus) has been in the national spotlight for weeks. While the virus noticeably impacts the daily lives of American people, its spread will touch all facets of society –including contract law. Many agreements will be affected by the coronavirus. Preventative measures will reshape contracts in ways that were completely unexpected when the parties came to agreement. To prevent these kinds of situations, contract law allows parties to avoid performance when faced with an act of God. Acts of God can affect contractual liability through written provisions or the common law.[1] Soon, many contractual parties will argue that the coronavirus pandemic is an act of God that excuses their performance under a contract.

II. BACKGROUND

A. The COVID-19 Pandemic

The coronavirus has taken the world by storm. Believed to have originated in China,[2] the coronavirus has infected over 856,000 individuals, killing just over 42,000 so far.[3] Over 100 million Americans face government issued lockdowns.[4] Many bars, restaurants, and shops have been forced to close indefinitely.[5] The coronavirus pandemic has drastically altered the day-to-day lives of individuals around the world. For the foreseeable future, most everyone will be spending the majority of their lives at home.

B. Acts of God in Contract Law

Individuals are typically held to their contracts. However, the law recognizes a limited number of justifications for nonperformance. One of those justifications is an act of God. A majority of American jurisdictions recognize an act of God that renders performance impossible as an acceptable excuse for nonperformance of a contract.[6] Acts of God can excuse nonperformance through the application of common law or a provision in the contract itself.[7] An act of God is defined in common law as “an act of nature that is the sole proximate cause of the event for which liability is sought to be disclaimed.”[8] Therefore, under common law, in order for an occurrence to justify an individual’s nonperformance, three requirements must be met: (1) the occurrence must be an act of nature; (2) it must be the sole cause of the event for which liability is sought to be disclaimed; and (3) it must render performance under the contract impossible. If a provision in the contract states that nonperformance is justified due to an act of God, the occurrence must simply meet the requirements stated in the contract.

While acts of God commonly include fires, weather changes, or natural disasters,[9] diseases have also been considered. For example, in Dewey v. Union School District, a school refused to pay one of its teachers during a three-month closing due to a small-pox outbreak.[10] The court found that, while the circumstances were unfortunate for the school, the small-pox outbreak did not render teacher payments impossible.[11] The school chose to suspend classes and therefore needed to uphold its contract.[12] The Dewey case demonstrates that diseases are acts of God, but that a problem arises with proving that a disease rendered performance impossible.

III. DISCUSSION

A. Does COVID-19 qualify as an act of God?

The coronavirus pandemic qualifies as an act of God. The coronavirus pandemic is an act of nature, being a disease that is not man-made.[13] Most courts recognize illness or disease as an act of God.[14] While the coronavirus may not excuse nonperformance of a contract in every context, it certainly meets the requirement of being an act of nature. The important question is not whether COVID-19 is an act of God, but in what circumstances can this act of God affect contractual liability.

B. The legal significance of COVID-19 as an act of God

There are two situations in which the coronavirus can excuse contractual liability. First, a contract could have a written provision stating that nonperformance is excused in the case of an act of God. Second, the common law excuses nonperformance where an act of God renders performance impossible.

The most prevalent use of the coronavirus as an excuse for nonperformance will likely be due to contractual provisions. As contractual provisions can allow nonperformance without the requirement of impossibility, many contractual parties will be able to use the coronavirus in their favor. An easy example would be the sale of a retail company. With retail stores likely to be closed for weeks or months, a buyer of a retail company would certainly reconsider the purchase due to the coronavirus pandemic. If the contract included a clause that stated an act of God excused performance, then the buyer could back out of the deal.

Without a contractual provision stating that acts of God excuse performance, it is less likely that a contractual party could excuse his or her nonperformance due to the coronavirus. Once again, the common law requires that an act of God render performance impossible in order to excuse nonperformance under a contract. Courts have been clear that difficulty is not enough.[15] There are a limited number of circumstances where the coronavirus pandemic would render performance impossible. However, such circumstances do exist.

A common situation in which the coronavirus will render performance impossible will be contracts that require performance within a certain period of time. For example, wedding planners who were hired to throw a wedding in early April will be unable to perform. With bans of large gatherings in place across the nation, throwing a wedding by the date agreed upon would be unlawful and therefore impossible. Furthermore, lockdowns and illness will likely affect many areas of work that cannot be done from employees’ homes. These areas include construction and sanitation, among many others. Performance of these types of contracts within an agreed upon period of time could realistically be rendered impossible due to the coronavirus.

IV. CONCLUSION

The coronavirus pandemic is likely to result in extensive litigation of contracts. Contractual parties affected by the outbreak will attempt to back out of agreements that are no longer practicable. In some cases, including those where an act of God provision was written in the contract, this could be rather easy to do. In other cases, the parties seeking to avoid liability will need to prove that performance was rendered impossible. This is a high bar to meet, but the extensive lockdowns across the country could realistically be enough to satisfy the requirement.


[1] 1 Am. Jur. 2d Act of God §§ 12.1, 13.

[2] Matthew Brown, Fact check: Coronavirus originated in China, not elsewhere, researchers and studies say, USA Today (Mar. 16, 2020, 12:05 PM), https://www.usatoday.com/story/news/factcheck/2020/03/16/coronavirus-fact-check-where-did-covid-19-start-experts-say-china/5053783002/ (Researchers believe the virus originated from a live animal market in Wuhan, China).

[3]Coronavirus Map, Google, https://google.org/crisisresponse/covid19-map (last visited March 31, 2020).

[4] John Bacon, Coronavirus live updates: Olympics postponed; 100M Americans in lockdown; stimulus stalls, USA Today (Mar. 23, 2020, 5:27 AM), https://www.usatoday.com/story/news/health/2020/03/23/coronavirus-live-updates-congress-stimulus-us-deaths-donald-trump/2895096001/.

[5] Erica Chayes Wilda, Which states have closed restaurants and bars due to coronavirus?, Today (March 16, 2020, 1:50 PM), https://www.today.com/food/which-states-have-closed-restaurants-bars-due-coronavirus-t176039.

[6] 1 Am. Jur. 2d Act of God § 12.

[7] Id. 1 Am. Jur. 2d Act of God § 13.

[8] 1 Am. Jur. 2d Act of God § 1.

[9] See 1 Am. Jur. 2d Act of God § 4.

[10] Dewey v. Union Sch. Dist., 43 Mich. 480, 481-82 (Mich. 1880).

[11] Id. at 482-483.

[12] Id. at 483.

[13] See Brown, supra note 2.

[14] 1 Am. Jur. 2d Act of God § 10.

[15] See Dewey v. Union Sch. Dist., 43 Mich. 480, 482-83 (Mich. 1880).