The COVID-19 pandemic and associated restrictions on travel and mass assembly have, and will continue to have, a significant affect on contractual obligations. When a business or party is unable to perform its contractual obligations due to factors completely outside of its control, such as those affecting society currently, the seldom-used legal doctrines of “impossibility of performance” and “frustration of purpose” may be used as defenses to a party’s non-performance.
For example, if an Italian operatic pop group agreed in June 2019 to perform a concert in Honolulu during the first week of April 2020, but in March 2020 the United States issued a travel ban from Europe, and the State of Hawaii also issued restrictions on mass gatherings making the concert impossible, “impossibility of performance” or “frustration of purpose” may come into play. If either of those legal defenses were to be accepted by a Court, the result would be that the band could avoid liability for reneging on the contract and would not have to pay damages (for example, damages associated with cancelling).
Impossibility will only excuse the non-performance of a contract when an unforeseeable occurrence makes performance impossible. An occurrence is considered unforeseeable when it was not contemplated by either party at the time the contract was made . Another possible defense to non-performance is frustration of purpose. Frustration of purpose applies when (1) the main purpose of the contract could not occur because of an intervening event; (2) the intervening event was substantial or severe; and (3) the intervening event was not foreseeable to the parties when they entered the contract.
Impossibility of performance comes into play where the object or the purpose of the contract is destroyed, whereas frustration of purpose may be available where contractual performance is technically possible, but the performance is “frustrated” because it would produce a substantially different result then what was anticipated at the time the contract was formed.
Under the above example, it is impossible for the group to travel from Italy to Honolulu for the concert for the contractually scheduled event the group should defend its non-performance based on the doctrine of impossibility of performance – because it is impossible for the group to travel to Honolulu, it is therefore impossible for them to perform and they should be able to cancel their obligations under the contract.
Frustration of purpose could apply if the group was able to make to Honolulu (for example, if the travel ban was lifted or if the group traveled to Honolulu prior to the ban being put into effect). However, while holding the concert would still technically be possible, the State’s restrictions on mass gatherings would mean that the concert could not go on as originally planned. Ultimately, the concert experience would be dramatically different from what was originally contemplated by the parties. The doctrine of frustration of purpose could therefore be invoked to excuse the group’s obligations under the contract.
Under both impossibility or performance and frustration of purpose, the operative factor to consider is whether the intervening event was foreseeable at the time the contract was signed. The COVID-19 pandemic is likely to affect a number of contracts, which may result in substantial litigation. The primary question that courts will likely consider is whether or not the current crisis was foreseeable at the time the contract was formed.