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    The Lawletter Blog

    CONTRACTS: Emergency Orders and Delayed/Excused Action

    Posted by Jason Holder on Fri, Dec 18, 2020 @ 10:12 AM

    The Lawletter Vol 45 No 6

    Jason Holder—Senior Attorney, National Legal Research Group

         With the spread of COVID-19, most jurisdictions have declared a state of emergency and/or issued executive orders curtailing daily life. See, e.g., Cal. Exec. Order N-33-20 (Californians must "stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors"); D.C. Mayor’s Order 2020-054 (District residents must "stay in their residences except to perform essential activities, engage in essential business, provide or obtain government services, or engage in certain authorized recreational activities not involving close contact with other persons"); N.Y. Exec. Order 202.8 (nonessential businesses and nonprofit entities must "reduce the in-person workforce at any work locations by 100%"); Va. Exec. Order 53 (nonessential "brick and mortar retail business[es] . . . may continue to operate but must limit all in-person shopping to no more than 10 patrons per establishment"). State and federal courts have also been forced to alter procedures, extend deadlines, or even limit court access. An updated list of orders, see https://web.csg.org/covid19/executive-orders/. Court closures and restrictions can be found at https://www.law360.com/articles/1252836.

         These orders have disrupted, and will continue to disrupt, business relationships and contractual arrangements throughout the country. While one might hope that all parties involved in such agreements would recognize the severity of the current situation and seek to accommodate each other, allegations of breaches remain possible. It is therefore important to remember that the delays and difficulties created by the current state of emergency and resulting executive orders might also serve to excuse an alleged breach given the intervening government act and the impossibility of performance.

         It has been called "a common principle, that, when a man is bound to perform a contract, which becomes impossible by the act of God, or unlawful by statute, after the making of the contract, he is excused from the performance; and may plead such matter in excuse, when sued upon his contract." Harrington v. Dennie, 13 Mass. 93, 94 (1816); Mis. & Tenn. R.R. v. Green, 56 Tenn. 588, 592-93 (1872) (nonperformance excused when occasioned by act of law); see also Sch. Dist. of Olyphant v. Am. Sur. Co. of N.Y., 322 Pa. 22, 29, 184 A. 758, 761 (1936) (applying principle to judicial order). While some modern courts continue to recognize this principle, others "analyze such a situation in terms of impossibility of performance . . . [while] [o]ther courts simply conclude that the duty to perform is excused or discharged because performance would violate public policy." White v. J.M. Brown Amusement Co., 360 S.C. 366, 371, 601 S.E.2d 342, 345 (2004); see also Restatement (Second) of Contracts § 264 (1981).

         This protection is not absolute, however, and can be overcome by demonstrating that the subsequent governmental act was either anticipated, the risk of such action contractually assumed, or that the impracticality stemmed from actions taken by the obligee. See State ex rel. Lane v. Dashiell, 195 Md. 677, 689, 75 A.2d 348, 354 (1950) (duty discharged "in the absence of circumstances showing either a contrary intention or contributing fault on the part of the person subject to the duty"); Alamance County Bd. of Educ. v. Bobby Murray Chevrolet, Inc., 121 N.C. App. 222, 230, 465 S.E.2d 306, 312 (1996) (regulations offer no excuse "where a party has assumed the risk of such regulation"). The fluid nature of the current state of emergency may also limit the temporal scope of such an excuse. See Scott v. Clarke, 355 F. Supp. 3d 472, 495-96 (W.D. Va.) (temporary impossibility only suspends a contractual obligation until the impossibility is removed), amended, 391 F. Supp. 3d 610 (W.D. Va. 2019); Specialty Tires of Am., Inc. v. CIT Grp./Equip. Fin., Inc., 82 F. Supp. 2d 434, 442 (W.D. Pa. 2000) ("temporary impracticability" relieves the obligation to perform "as long as the impracticability lasts and for a reasonable time thereafter"); Bush v. Protravel Int'l, Inc., 192 Misc. 2d 743, 752, 746 N.Y.S.2d 790, 797 (Civ. Ct. 2002) (performance excused until it becomes possible to perform rather than excusing performance entirely). But see Maudlin v. Pac. Decision Sciences Corp., 137 Cal. App. 4th 1001, 1017, 40 Cal. Rptr. 3d 724, 735 (2006) (temporary impossibility suspends performance "unless the delayed performance becomes materially more burdensome or the temporary impossibility becomes permanent").

         Application of these principles will, of necessity, depend upon the nature of the contractual obligation, the wording of the governmental order, and the actions taken by the contracting parties. See, e.g., Williams v. A Day to Remember Invitations, LLC, 06-757 (La. App. 5 Cir. 3/13/07); 956 So. 2d 30 (plaintiff precluded from recovering prepayment despite surrounding area being under a state of emergency in the aftermath of Hurricanes Katrina and Rita, where facility was open and staffed on date of plaintiff's scheduled party and plaintiff declined to reschedule). Nevertheless, it will undoubtedly be worth considering whether the executive orders which helped create the disputes can also be used to solve them.

    Topics: contracts, Jason Holder, COVID-19, executive orders, suspension of contractual obligation

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