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Coronavirus Impact: Cancelled Events and Contract Breaches

Written by Adel Nucho on March 24, 2020 Category: Business Law & Transactions, Coronavirus, General Counsel and Advice

With the implementation of Governor Whitmer’s order prohibiting events of more than 50 people in a single indoor shared space (like a hall, auditorium, stadium, theater, concert venue, etc.), and the more recent stay at home order, many events were and are yet to be cancelled.

These orders, of course, have a sound and understandable purpose: to mitigate the spread of the coronavirus (COVID-19). However, they also bring about unfulfilled contractual promises and ancillary financial burdens.

Unquestionably, the overall public benefits outweigh the private burdens.

But let’s say a couple paid a reservation deposit on a venue for their planned wedding celebration, or one already bought tickets for a music festival that got cancelled. Could they seek to cancel the agreement and get a refund? Or are they considered to have bore the risk of such circumstances?

These questions raise various issues under contract law.

Impossibility of Performance and Frustration of Purpose

Under Michigan law, the doctrines of supervening impossibility or impracticability and frustration of purpose provide an excuse for failing to perform a contractual promise, and are generally governed by similar legal principles.

These doctrines come into play upon the happening of an event that frustrates the purpose of the contract or makes performance of an obligation impossible.

As a general rule, the event must be one that is not fairly to be regarded as within the risks the parties assumed under the contract. In other words, the non-happening of the event must have been a basic assumption on which the contract was made.

Thus, as applied to the coronavirus pandemic, would it be fair to say, “it was a basic assumption of the parties to a contract that such a crisis would never take place”? Or is it more reasonable to say that “one of the parties assumed the risk that such a crisis will come about”?

These are the kinds of questions a Michigan court will have to grapple with.

But remember, every court will inevitably start with the terms of the contract (usually contained in a writing). This brings us to the so-called “force majeure” clause.

Force Majeure Clauses

Like the common-law doctrines discussed above, a force majeure clause may relieve a party from penalties for breach of contract when an event (like the coronavirus pandemic) renders performance untenable or impossible.

A typical force-majeure clause contains language to the effect that “neither party will be liable for delays or failures in performance of its obligations under the agreement that arise our of or result from causes beyond such the party’s control, including acts of God; acts of the Government or the public enemy; natural disasters; fire; flood; epidemics; quarantine restrictions; strikes; freight embargoes; war; or acts of terrorism.”

If the contract contains such a clause, the next step is to determine whether the coronavirus pandemic and the signing of executive orders qualify as an “act of God” and “acts of Government,” respectively.

They likely do, but there is no clear answer without actually reading the language of the specific clause at issue and the contract as a whole.

One thing is clear, however: the existence of a force majeure clause provides a more solid ground to argue that performance should be excused, and the contract cancelled (rescinded).

Accordingly, with regards to the wedding celebration or music festival that got cancelled, the answer will inevitably hinge on the terms of the contract. But even if the contract is silent, other doctrines might prove helpful.

If you have any questions about the content of this blog, or about the impact of the coronavirus on a contractual obligation of yours, feel free to contact a Dalton & Tomich, PLC business attorney for guidance.

The content of this blog post, drafted by a law clerk, was reviewed and approved by a licensed attorney.

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