Does required closure allow contract termination?

Impossibility

• The doctrine of impossibility excuses both parties from their obligations under a contract if the performance has been rendered impossible by events occurring after the contract was formed.
  1. The requirements:
     1. The impossibility must be OBJECTIVE.
        1. Objective impossibility occurs when the performance becomes LITERALLY IMPOSSIBLE
        2. for ANYONE because of circumstances beyond the control of the parties
  2. EXAMPLE: X promises to sell Y his horse, but the horse dies before X can deliver the horse.
• Impossibility may excuse nonperformance where a party establishes that: (1) an unexpected intervening event occurred; (2) the parties’ agreement assumed such an event would not occur; and (3) the unexpected event made contractual performance impossible or impracticable.
• Certain states insist on actual impossibility; others allow relief in cases of “impracticability”, which is less than true impossibility but nevertheless a high standard of proof.
• See Restatement (Second) of Contracts § 261 (Am. Law Inst. 1981) (addressing the impracticability of performance). As one leading commentator explained, “extreme impracticability of performance may properly be regarded as having the same effect as strict impossibility of performance,” and performance is impossible when “it can only be done at an excessive and unreasonable cost, for which the parties had not bargained.” (17A AM. JUR. 2D Contracts §643 (2020).)
• Virginia law follows the Restatement view: “Ordinarily, a supervening condition that renders a promisor’s performance temporarily impossible will not release him from the duty of performing, but will only suspend that obligation. Restatement (Second) of Contracts §269 (1981); 18 Samuel Williston, A Treatise on the Law of Contracts §1957, at 150 (3d ed. 1978). This general rule is inapplicable, however, if the delay will make the promisor’s performance materially more burdensome. Restatement (Second) of Contracts §269 (1981). In that instance, the promisor’s duty of performance is discharged rather than suspended. Id. Nevertheless, as the comments to the Restatement point out, ‘[t]he rule stated in this Section is, of course, subject to contrary agreement.’ Id. at cmt. a.” (Long Signature Homes, Inc. v. Fairfield Woods, Inc., 445 S.E.2d 489, 491, 248 Va. 95, 99 (1994).)

Force Majeure

• The doctrine of force majeure is similar to that of impossibility, in that courts look to similar elements when considering the applicability of a force majeure clause:
  1. whether the event qualifies as force majeure under the contract;
  2. whether the risk of nonperformance was foreseeable and able to be mitigated; and
  3. whether performance is truly impossible.
• The primary focus is on whether the clause encompasses the type of event a contractual party claims is causing its nonperformance.
  1. Force majeure clauses are generally interpreted narrowly; therefore, for an event to qualify as force majeure it must be outlined in the clause at issue.
  2. Even when a potential force majeure event is encompassed by the relevant clause, however, a party is under an obligation to mitigate any foreseeable risk of nonperformance, and cannot invoke force majeure where the potential nonperformance was foreseeable and could have been prevented or otherwise mitigated.
     1. “‘There may be more than one proximate cause of an event.’ Molchon v. Tyler, 262 Va. 175, 182, 546 S.E.2d 691, 696 (2001); Panousos v. Allen, 245 Va. 60, 65, 425 S.E.2d 496, 499 (1993). While it is self-evident that the rain must have been a proximate cause of the erosion of the slope, the record evidence would not have supported a defense by Westlake Properties that the rain was the sole proximate cause of the failure of the slope.” (Westlake Properties v. Westlake Pointe, 639 S.E.2d 257, 268, 273 Va. 107 (2007).)
  3. Furthermore, depending on the relevant contractual language and governing law, a party generally will be required to establish that performance is truly impossible rather than merely impracticable. In this regard, as noted above, the doctrine functions like that of impossibility; some jurisdictions may only require that performance be impracticable, and some contracts may set a different standard (e.g., performance is “inadvisable”).

Mortgage/Rent Abatement (Because Cannot Operate or Open)

• Mortgages.
  1. “We’re on the front end of this. We don’t know,” said Mark Calabria, director of the Federal Housing Finance Agency (FHFA) which currently oversees Fannie Mae and Freddie Mac (the “Enterprises”) under government conservatorship. “If this goes more past the summer, certainly it’s going to call for a different set of responses.”
  2. For now, Calabria said borrowers do not need to have been sickened by the virus to qualify, only to show financial hardship.
     1. “You could be working somewhere, you’ve lost your job, that is a hardship that we will count. You can just be adversely impacted economically,” said Calabria.
     2. The FHFA announced on March 18th that “Today, to help borrowers who are at risk of losing their home, the Federal Housing Finance Agency (FHFA) has directed Fannie Mae and Freddie Mac to suspend foreclosures and evictions for at least 60 days due to the coronavirus national emergency. The foreclosure and eviction suspension applies to homeowners with an Enterprise-backed single-family mortgage.
     3. Earlier this month, FHFA announced that the Enterprises would provide payment forbearance to borrowers impacted by the coronavirus. Forbearance allows for a mortgage payment to be suspended for up to 12 months due to hardship caused by the coronavirus.
        1. “This foreclosure and eviction suspension allows homeowners with an Enterprise-backed mortgage to stay in their homes during this national emergency,” said Director Mark Calabria.
        2. “As a reminder, borrowers affected by the coronavirus who are having difficulty paying their mortgage should reach out to their mortgage servicers as soon as soon as possible. The Enterprises are working with mortgage servicers to ensure that borrowers facing hardship because of the coronavirus can get assistance.” (Source: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Suspends-Foreclosures-and-Evictions-for- Enterprise-Backed-Mortgages.aspx, accessed on March 21, 2020.)
• Rent.
  1. On March 16, 2020, the Supreme Court of Virginia declared a judicial emergency, resulting in a host of changes to Virginia’s court system. See In Re: Order Declaring a Judicial Emergency in Response to Covid-19 Emergency, effective March 16, 2020.
     1. Primarily, it suspended all non-essential, non-emergency court proceedings from Monday, March 16 through Monday, April 6.
     2. Among those non-essential proceedings are all new eviction cases in the commonwealth of Virginia for tenants unable to pay rent as a result of COVID-19.
     3. “It would be an absolute outrage for Virginians to be evicted from their homes during this emergency, especially as we are asking them to practice social distancing and stay home to prevent further spread of COVID-19,” said Attorney General Mark Herring. “This temporary eviction suspension is particularly important for hourly wage earners who are more likely to lose income and not be able to pay their rent because of business closures. I want to thank the Supreme Court of Virginia for making this important decision to protect Virginians during these unprecedented times.” (https://www.whsv.com/content/news/Supreme-Court-of-Virginia- suspends-all-non-emergency-evictions-568873161.html, accessed March 21, 2020.)
     4. All non-exempted court deadlines are tolled and extended for a period of 21 days, according to the judicial order.
     5. The State Corporation Commission has also ordered a halt on disconnections by all regulated utilities for 60 days during the commonwealth’s state of emergency.
  2. While these measures (and those pertaining to foreclosures of mortgages, see III.A., above) apply primarily to residential tenants and owners, nevertheless, the judicial emergency and the guidance from FHFA should also operate to provide business owners some temporary relief from actions for eviction or foreclosure during the pandemic.

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