If Past is Prologue, Then The Future is Bleak: Contracts, COVID-19 and the Changed Circumstances Doctrines

At the heart of most of the systemic problems currently confronting individuals and businesses as a result of the COVID-19 pandemic is quite literally a contract. Housing. Insurance. Food. Health Care. Child Care. Employment. Manufacturing. Construction. Supply Chains. You name it. Contracts are implicated everywhere. So, make no mistake, how contract law addresses these ostensibly private contracts will have profound social consequences. If the past really is prologue, then the future is indeed bleak. The empirical study conducted for this Article establishes what the conventional wisdom has claimed for the last 70 years. More specifically, the empirical study here shows that the common law’s changed circumstances doctrines [“CCDs”] (i.e., impossibility, impracticability of performance and frustration of purpose) will generally not excuse a party from performing his contract, regardless of the changed circumstance being alleged. Contrary to all of the CCD literature that addresses this issue, this Article makes the unconventional argument that the CCDs should be more broadly available, meaning they should be more successful in excusing contract performance when triggered by catastrophic circumstances. And, unlike the rest of the field which focuses on the CCDs themselves, this Article argues that to effectively address the allocation of unforeseen risks, in general, and catastrophic risks like a pandemic, in particular, we must reframe the legal approach to contract formation. If contract formation is reframed to more accurately reflect contracting in the real world, and given that the solution to the changed circumstances problem preferred by courts and commentators is an explicit risk allocation term in the parties’ contract, then the solution proposed in this Article to the risk allocation problem literally suggests itself. A risk allocation clause should be mandated in most contracts as part of contract formation. The type of risk allocation and loss clause and the way the clause would work would depend on whether the contract is co-drafted or adhesive. The inclusion of a risk and loss allocation clause would facilitate transactions and encourage contracting in general by ensuring that contracts remain efficient and predictable. The main difference between the risk and loss allocation clause proposed here and existing contract law, of course, is who ends up bearing all of the risk and loss occasioned by the catastrophic changed circumstance. To be clear, if nothing changes and our approach to contract formation remains the same as it is right now, then all of the risk and all of the attendant loss will generally be left to lie where it falls, namely, on the party trying to get out of the contract because of the changed circumstances; and this will be result regardless of the legal theory used to justify (or demonize) the CCDs or any changes made to the doctrines themselves. But, If we finally acknowledge the public aspects of contracts and contract law, namely, that they do in fact produce social consequences that extend beyond the individual contract and contracting parties, then contracts and contract law may well be part of the solutions to some of the most pressing problems currently confronting American society now and into the future.