A force majeure clause covers and replaces the same reason as the common law impossibility doctrine, a parent of frustration who excuses a party when an extraordinary event renders its contractual performance impossible through no fault of its own (In re Hitz Rest Grp, 616 BR 374, 377 [Bankr ND Ill 2020] (“Force majeure clauses in contracts replace the common law doctrine of impossibility.”). In other words, when the parties include a force majeure clause in a contract, the exact terms of the clause, rather than the common law doctrine of impossibility, determine whether a party should be exempted from performance on the grounds that it has become impossible (Andrew A Schwartz, Contracts and COVID-19, 73 Stan L Rev Online 48, 49 (2020)). In a previous warning, we discussed how the application of a force majeure clause in a contract can excuse the performance of a party in whole or in part. But what happens if a contract does not contain a force majeure clause? Other legal doctrines may still come into play to excuse performance in the circumstances created by the current COVID-19 pandemic. The frustrating event cannot be foreseeable If the event in question was foreseen by the parties or addressed in the contract in the form of a force majeure clause, the parties will be deprived of availing themselves of this doctrine.3 As a result, the time of conclusion of the contract may be important at the relevant time, depending on the state of knowledge of the effects of COVID-19. What is a frustrating event? Frustration-related cases do not contain an exhaustive definition of a frustrating event. Therefore, whether or not a particular treaty has been thwarted depends largely on the wording of that treaty and the facts surrounding it. The threshold for determining the occurrence of such an event – such as the COVID-19 crisis – is onerous, as a company would have to prove it:2 The most developed of this group is In re CEC Entertainment Inc, a federal bankruptcy case relating to CEC, the operator of arcade pizza chain Chuck E. Cheese (In re: CEC Entertainment, Inc., No. 20-33162, 2020 WL 7356380 (Bankr SD Tex December 14, 2020)). In this case, KEG argued that it should be excused by numerous leases for frustration. Each of its various leases contained a force majeure clause, and the court dismissed the CEC`s claims on the grounds that the force majeure clauses “replace the application of the doctrine [of frustration]” (Id to *3). In its discussion of the CEC`s lease to a North Carolina property, the court said, “In the context of COVID-19, consider a commercial tenant whose business has been closed due to government orders to stay home.
When the tenant invokes frustration, he is not arguing that his performance in paying rent is literally impossible due to the pandemic. It`s not that the virus paralyzed his check-writing hand. On the contrary, the tenant argues quite differently: he should be exempted from paying his rent because the COVID-19 pandemic and related government orders have made the lease worthless to him. Since his claim focuses on the loss in value of the lease – that is, his main purpose of closing the lease (to run his business) has been completely undermined by the pandemic – he falls into the category of frustration rather than impossibility. On the other hand, a force majeure clause should not replace, suppress or replace an allegation of frustration at common law, as frustration is a separate doctrine that deals with another subject (Glenn R Sewell Sheet Metal, Inc v Loverde, 451 P.2d 721, 729 n.13 (1969) (noting that, although frustration seems to overlap with impossibility, “[i]t, however, a doctrine of its own`).) That is, an allegation of frustration is not based on the fact that enforcement is impossible; It is based on the fact that the contract is useless because the consideration has become worthless. This is not an exhaustive list, but gives an overview of the type of circumstances that can represent frustration. International perspective In cases where a party`s ability to perform is only temporarily impeded by COVID-19 restrictions, it is unlikely that a court will conclude that a frustrating event has occurred that should lead to the performance of the parties` contractual obligations. In the context of the COVID-19 crisis, the following circumstances may be considered sufficient to thwart a treaty in some cases (for example): To remedy the injustice that can result from frustration, several Australian states (New South Wales, Victoria and South Australia) have enacted laws to create space for money, which are paid under certain types of frustrated contracts to claim. Similarly, that legislation also provides for a possible recovery of compensation in relation to obligations fulfilled without payment before the occurrence of the frustrating event. However, parties can choose to withdraw from this legislation if they wish.12 The CEC argues that the global pandemic itself and government regulations related to the pandemic are frustrating events. The force majeure clause.
. . . replaces the doctrine of frustration with the objective because the parties have expressly attributed the risk of unusual government regulation. The force majeure clause takes into account unusual government regulations and how they may alter the performance obligations of the parties. The parties have expressly agreed [in the force majeure clause] that unusual government regulations do not release the CEC`s obligation to pay the rent. The exemption from payment obligations of the force majeure clause excludes CEC from relying on frustration due to the alleged occurrence of a case of force majeure. (Id at *11 (emphasis added)) In short, the frustration doctrine is by no means replaced or replaced by a typical force majeure clause (as evidenced by the many cases where allegations of frustration have been analyzed for justification despite the existence of a force majeure clause (see e.B. Pieper, Inc v. Land O`Lakes Farmland Feed, LLC, 390 F.3d 1062, 1066 (8th Cir 2004); Beardslee v Inflection Energy, LLC, 904 F Supp 2d 213, 219-21 (NDNY 2012))).
What if I have already made payments or fulfilled obligations under the contract before he became frustrated? Unfortunately, the common law position on frustration can lead to a harsh outcome for the parties, as the general principle is that “losses are where they are”.11 At common law, it can be difficult for a party to claim payments made or claim compensation for services provided before the frustrating event occurs. since no party is to blame. Illegality In the past, governments have introduced numerous restrictions on trade and industry in times of crisis and have made legislative changes that affect the performance of contracts. A contract is illegal by law if it is expressly or implicitly prohibited by law. In addition, a contract can be thwarted if it becomes illegal in the course of its performance. Impossibility of performance: The doctrine of impossibility may excuse the performance of a party`s contract if an unforeseen event makes performance objectively impossible. As with force majeure, the doctrine of impossibility is applied narrowly. Remarkably, New York law is more restrictive than the law of many other states because it requires performance to be objectively impossible. .