Breaking contracts: Can you argue it’s an ‘act of God’?
The coronavirus pandemic has prevented countless people from fulfilling their contracts, from basketball players to babysitters.
Could all of these people be sued for breach of contract, or are they excused due to this extraordinary event? What about payments made in advance, such as tickets bought for a concert that has now been canceled or a dorm room leased at a college that is now closed?
Wars, floods and other pandemics have undermined innumerable contracts over the years. In response, U.S. courts have established a fairly clear set of legal rules to answer these questions.
Rules of impossibility and restitution
A promise given in exchange for money becomes an enforceable contract, and it remains enforceable even if living up to its terms turns out to be more challenging than expected.
If a babysitter promises to look after your children once a week for $50, she is bound to the contract regardless of car trouble, the kids misbehaving or other hardships. If the babysitter gives up, that is a breach of contract and she is legally liable to you. This is what makes a contract a contract and not an idle promise to give it a try.
But what if the babysitter failed to show up because a coronavirus outbreak made it physically dangerous for her to enter your house or because the government issued an order to remain home to avoid spreading the virus?
Because this type of extraordinary and unanticipated event, often called an “act of God,” is so radically different from the ordinary risks and challenges of babysitting, and because it makes her performance so much more difficult and dangerous than expected, the courts will excuse her from the contract. Through no fault of her own, her performance has become effectively impossible, and so her failure to babysit does not count as a breach of contract.
That is not the end of the story, though. Under the legal doctrine of restitution, which prohibits unjust enrichment at the expense of another, the babysitter would have to return any money you paid her in advance. She has not breached the contract, but neither has she fulfilled it, so it would be unjust for her to keep that money.
This basic framework – impossibility and restitution – applies generally to contracts that have been upended by the coronavirus pandemic and government orders to combat the virus’s spread.
It does not apply to every expense, however.
If you bought a $100 ticket for a Lady Gaga concert and the event has been canceled, there is no breach of contract, although Lady Gaga would have to refund your $100 as a matter of restitution.
Force majeure: The escape clause
In some cases, an escape clause is written into the contract specifically for situations like this. It’s called “force majeure,” which translates to “superior force” and is often referred to as the “act of God” clause.
Force majeure clauses are common in corporate contracts. They dictate which types of unexpected events will excuse performance and how to deal with payments already made or other losses. Some might expressly mention pandemics or government orders, while others might not.