The coronavirus (COVID-19) pandemic is affecting communities all around the world. According to data from the Texas State Department of Health, 41,408 COVID-19 cases have been confirmed in our state as of May 12th. Beyond being a serious public health crisis, the coronavirus pandemic has also disrupted the economy. Many companies are seeking legal counsel to deal with the fallout of COVID-19.
For example, some businesses have exercised a force majeure clause to get relief from contract obligations. This raises an important question: What options does a company have if its contract lacks a force majeure clause?
The short answer is that your business may still be excused from contract performance if a common law defense applies. Here, we highlight the common law defenses that might help you avoid a breach of contract lawsuit during the coronavirus outbreak.
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Three Common Law Defenses to Help You Avoid Litigation During COVID-19
Impossibility (Frustration of Purpose)
A company may be excused from performing its obligations under a contract on the grounds of impossibility. In contract law, impossibility is a common law defense that may be raised if a change in circumstances make performance of the contract impossible. Texas recognizes the doctrine of impossibility, but state courts have interpreted the defense to require more than “difficulty” or “hardship.”
In other words, this is a narrow remedy: Performance must genuinely not be a reasonable possibility. Additionally, Texas courts have previously disallowed this contact defense in cases in which impossibility could and should have been “reasonably been anticipated.” For example, in the case of Metrocon Const. Co., Inc. v. Gregory Const. Co., Inc. a Texas appeals court disallowed ‘high winds’ as an impossibility defense in a construction litigation case because wind of that nature was deemed foreseeable.
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Of course, in many ways, COVID-19 is an unprecedented pandemic. A Texas court may deem the coronavirus outbreak and the subsequent government shutdowns as an unforeseeable risk that permits parties to escape a contract on the grounds of impossibility.
Note: In other jurisdictions, ‘frustration of purpose’ is a distinct common law breach of contract defense. While somewhat similar to impossibility, a frustrated purpose is defined as a significant and unforeseeable change that completely undermines the party’s principles for entering the agreement in the first place. In Texas, there is no true functional difference between impossibility and frustration of purpose. They have been rolled into a single larger doctrine.
Commercial Impracticability (Sale of Goods)
Along with all other U.S. states, Texas has adopted the Uniform Commercial Code (UCC). The UCC is a set of laws designed to harmonize regulations across jurisdictions and it governs the sale of goods in Texas. Under the Uniform Commercial Code § 2-615, Texas recognizes commercial impracticability as a valid common law defense in breach of contract claims related to the sale of goods. Commercial impracticability is a doctrine that excuses performance when an event outside of the control of the parties may the contractual duty excessively burdensome or extraordinarily costly.
In some cases, the commercial impracticability standard is less strict and easier to satisfy than the impossibility standard. To be clear, this aspect of the UCC only applies to contracts that pertain to the sale of goods. This means that a contract for services will not be governed by the code. If the COVID-19 pandemic has made performance of an agreement commercially impracticable—for example, if it made certain highly demanded supplies are prohibitively expensive and all-but-impossible to obtain—a company may be excused from contract performance on common law grounds.
Contracts Against Public Policy
Finally, a company may be able to defend itself against litigation on public policy grounds. As a general rule, a contract formed in violation of public policy (or a state statute) is not an enforceable contract in Texas. As a simple example, you cannot enforce a contract that involves the sale of illegal goods.
In light of the serious public health consequences of the COVID-19 pandemic, certain contracts could potentially be deemed unenforceable on public policy grounds. As an example, imagine that a North Texas business is unable to fulfill its contractual obligations without violating a state or local public health order related to COVID-19. In that circumstance, a court may determine the contract, in its current form, is against public policy.
As such, performance may be excused on common law grounds. Though, once again, this is a relatively narrow contract defense. In one case, a state court noted that only when an issue is “obviously” against public health, safety, and welfare can a court declare a contract void on public policy grounds.
How the Commercial Litigation Attorneys at Sumner Schick Can Help
If the coronavirus outbreak is preventing your company from performing to a contract, it is imperative that you take a proactive approach to protect your rights. Remember, the lack of a force majeure close is not dispositive—affected businesses may still be protected by a common law defense. At Sumner Shick LLP, we are well-positioned to guide clients during this stressful and unprecedented time. Our Texas business litigation attorneys are prepared to:
- Conduct a comprehensive review of your breach of contract case;
- Investigate the matter—gathering relevant documents, records, and evidence;
- Explore all possible common law defenses against litigation; and
- Take action to protect the rights of your business.
In some cases, a settlement may be the best option for all parties. Affected businesses and their counterparties may be able to modify or reform an agreement to get through the COVID-19 crisis—this is especially useful for businesses that want to preserve a long-standing commercial relationship. At the same time, companies dealing with COVID-19 disruptions must be ready to take necessary action to protect their interests.
Call Our Dallas, TX Business Lawyers for Immediate Assistance
At Sumner Schick LLP, our Texas corporate attorneys have extensive experience representing clients in high-stakes litigation and business law matters. If you have any questions or concerns about common law defenses to avoid litigation, we can help. To set up a confidential consultation, please contact our law firm today. With a law office in Dallas, we represent clients throughout the region, including in Dallas County, Tarrant County, Denton County, Collin County, and Ellis County.