COVID-19: Pre-Existing Contracts in New Hampshire and Vermont
COVID-19 is spreading rapidly throughout the world. In New Hampshire and Vermont, state and local officials have taken increasingly aggressive response measures to contain the outbreak, including suspending schools, closing stores and restaurants, cancelling large-scale community gatherings, and asking private firms to adopt working from home and other social distancing policies. These responsive measures have caused serious disruptions to local businesses and created uncertainty about pre-existing commercial contracts.
New Hampshire and Vermont are confronting unprecedented shutdown and wide-scale disturbance. Consequently, businesses may need to consider the contractual and legal issues arising from this situation. Although most contracts will require ongoing performance, there are some exceptions that may allow for relief from performance obligations. The notable exceptions are the operation of a “force majeure” clause in a contract and the common law concepts of “impossibility” and “frustration of purpose”. Although the case law in New Hampshire and Vermont is not fully developed with respect to force majeure provisions and the doctrines of impossibility and frustration of purpose, these concepts will likely have applicability as businesses address COVID-19 in the context of pre-existing contracts.
Force majeure is a contract provision that parties add to their agreements as a precautionary measure to excuse performance under certain circumstances. If a “force majeure” event occurs, a party may have an authorized excuse for failing to perform or allowing a delay in performance. It comes from the French phrase, “superior force,” and customarily has been contractually defined to include wars, riots, famine, travel bans, floods, strikes, earthquakes, government requisitions or other so called “acts of God”. (1)
Force majeure may be a defense to a breach of contract claim, but only if a contract contains a force majeure clause covering the event triggering force majeure. For example, in Tommy Hilfiger Retail, Inc. v. N. Conway Outlets LLC, the U.S. District
Court for the District of New Hampshire discussed whether a certain event—delay in construction of a store due to a government demand to stop construction—excused a party from performing because the parties’ contract contained a force majeure clause covering “government restrictions.” (2)
Although New Hampshire has recognized the applicability of force majeure clauses, courts may construe such provisions very narrowly. For instance, if the clause includes a list of qualifying events, courts may confine application of the clause only to those events and may require proof that the event was unforeseeable.
While force majeure is a provision in a written contract, impossibility is a common law doctrine recognized by both New Hampshire and Vermont courts. (3) Impossibility excuses performance on the occurrence of an extraordinary intervening event—a party to a contract may be excused from performing obligations if circumstances, which are beyond the control of that party, and which were not reasonably foreseeable by that party at the time the contract was made, make it completely and permanently impossible for either party to perform its obligations. In the context of COVID-19, government responsive measures such as quarantines or travel bans that completely preclude a party from performing its contractual obligations may provide sufficient grounds for excusing performance based on impossibility. Nevertheless a party asserting this doctrine must, at a minimum, show that the risks presented by COVID-19 were unforeseeable at the time of contracting. Consequently, the effective date of contracts and the existing knowledge of the COVID-19 outbreak at the time of a particular contract may render the impossibility defense unavailable.
Frustration of Purpose
As with impossibility, both New Hampshire and Vermont courts may also recognize the common law doctrine of frustration of purpose.(4) Frustration of purpose applies if the purpose for entering a contract is unforeseeably and completely destroyed. “Frustration is relative and usually not deemed present when the contract’s main purpose is obtainable.”(5) It does not mean allowing a party to simply withdraw from a poor bargain, but that the underlying purpose of the contract no longer exists.
For COVID-19, frustration of purpose will most likely be applicable to contracts where there is a clear specific purpose, and that purpose is defeated by the effects of the virus. For example, contracts that are entered into for a specific event and that event is cancelled because of the outbreak. Even still, parties arguing frustration of purpose will have to prove that the outbreak was unforeseen. This may be difficult depending on the timing of the contract.
COVID-19 presents a challenge to pre-existing New Hampshire and Vermont contracts. As discussed, if affected parties have a force majeure clause in their contract, then they may be able to use that provision to excuse some performance, but it is still unclear how narrowly New Hampshire and Vermont courts will construe those clauses. In any event, each contract will need careful review to determine the applicability and reach of such a provision. There is no one size fits all analysis. If parties do not have a force majeure clause, impossibility and frustration of purpose may also provide some relief from full performance.
We are reviewing contracts for our clients and will be closely monitoring how courts are handling these cases. Please contact one of our attorneys if you are experiencing difficulty regarding a contract affected by COVID-19.
- In re Robert G. Bushnell, Jr., 273 B.R. 359 (Bankr. D. Vt. 2001) (force majeure typically utilized to avoid performance in contractual or insurance setting).
- Tommy Hilfiger Retail, Inc. v. N. Conway Outlets LLC, 2000 WL 1480450 (D.N.H. Feb. 14, 2000).
- Bower v. Davis & Symonds Lumber Co., 406 A.2d 119, 122 (N.H. 1979) (doctrine requires complete and permanent impossibility); Agway, Inc. v. Marotti, 540 A.2d 1044, 1045–46 (Vt. 1923) (citing City of Montpelier v. National Surety Co., 122 A. 484, 487 (Vt. 1923)) (impossibility must consist in the nature of the thing to be done not inability to do it).
- Perry v. Champlain Oil Co., 114 A.2d 885 (N.H. 1955); SKI, Ltd. v. Mountainside Properties, Inc., 2015 VT 33, 198 Vt. 384, 114 A.3d 1169 (2015) (citing Restatement (Second) of Contracts §§ 261, 266) (duty to render performance will not be discharged unless purpose is frustrated or made impracticable without fault of party seeking discharge).
- Perry, 114 A.2d at 888.