Covid-19 and Your Contracts
Times are crazy and unprecedented. Fry Law is still here. Fry Law is still suing people!
During these times we are getting a lot of questions relating to contracts. Specifically, monthly or subscription-based contracts. A couple common examples are monthly gym memberships and lease agreement where the space is not available due to Coranavirus (hair salons, etc.). It has even been an issue with real estate transactions that were pending prior to the shelter-in-place orders.
It has come to Fry Law’s attention that some of these people are still charging their clients even though they are unable to use the memberships or space. We have also discovered that people are attempting to keep deposits on real estate transactions. This is a legal problem. The remedy is to file a lawsuit seeking declaratory relief (C.C.P. §1060), requesting rescission of the Contract based on frustration of purpose and impracticability.
These contracts’ purposes may have been frustrated at no fault of either party. The defense of Frustration of Purpose applies when performance is not impossible or impracticable, but has become pointless—i.e., the main purpose of a contract has become frustrated. [See La Cumbre Golf & Country Club v. Santa Barbara Hotel Co. (1928) 205 C 422, 425–426, 271 P 476, 477—hotel agreed to pay monthly amount to golf course for use by guests, but hotel burned down; Lloyd v. Murphy (1944) 25 C2d 48, 53, 153 P2d 47, 50 (discussing difference between impossibility and frustration); Glenn R. Sewell Sheet Metal, Inc. v. Loverde (1969) 70 C2d 666, 676–677, 75 CR 889, 896, fn. 13 (collecting cases); see Rest.2d Contracts, Intro. Note to Ch. 11 & §§ 261–272].
Frustration of purpose applies when a change in circumstances makes one party’s contract performance worthless to the other party. See Restatement (Second) of Contracts § 265. The defense commonly contains three elements: (1) the party’s principal purpose in making the contract is frustrated; (2) an event occurred whose non-occurrence was a basic assumption underlying the contract; and, (3) the party invoking the defense was not at fault.
Performance may be excused when performance is not literally impossible but is made impractical due to excessive and unreasonable difficulty or expense. [See Mineral Park Land Co. v. Howard (1916) 172 C 289, 293, 156 P 458, 460 (expense of performance 10 times anticipated); Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga (2009) 175 CA4th 1306, 1336, 96 CR3d 813, 843; see Rest.2d Contracts §§ 261–264].
The common law doctrine of impossibility also applies and provides that a party’s contractual obligations are excused when supervening circumstances make the performance impossible or impracticable. Courts around the country routinely refer to the definition set out by the Restatement (Second) of Contracts § 261: Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate to the contrary. The doctrine contains several important requirements. Chief among them is that the parties must have shared a basic assumption that the supervening event would not occur. The supervening event must not have been reasonably foreseeable, nor is it enough that performance is more difficult or expensive than the parties had originally anticipated. No one could have foreseen that a global pandemic resulting in a Shelter in Place Order would transpire.
Fry Law Corporation is expecting a number of new cases relating to these principles and will be ready to fight for our clients.