Mark Pestronk
Q: To handle travel arrangements for a convention that was supposed to have been held next month, our agency signed contracts to charter dozens of buses and block hundreds of hotel rooms. Now, we are on the hook to pay the suppliers hundreds of thousands of dollars even though the convention has been canceled because of Covid-19. While the hotels have been somewhat cooperative in offering to roll the debt over to a future convention, the bus companies are demanding to be paid in full. Do we have any legal grounds for refusing to pay because of Covid? What about force majeure?
A: Force majeure would only apply if you were physically prevented from making any payment, which isn't the case here. However, there is a similar legal doctrine called "frustration of purpose" that may well provide you with a valid defense if the suppliers sue you.
Although the law of contracts varies somewhat from state to state, the doctrine of frustration of purpose applies in nearly every state. The legal treatise that explains the doctrine states, somewhat opaquely:
"Where, at the time a contract is made, a party's principal purpose is substantially frustrated without his fault by a fact of which he has no reason to know and the nonexistence of which is a basic assumption on which the contract is made, no duty of that party to render performance arises, unless the language or circumstances indicate the contrary."
In other words, you don't have to pay if: (a) the purpose of the contract was to accommodate the conventioneers, (b) that purpose cannot be fulfilled because of a fact like a pandemic, (c) neither you nor the supplier had reason to suspect a pandemic at the time the contracts were signed and (d) the absence of anything like a pandemic was a basic assumption of the parties when they signed.
The explanatory comment on this section of the treatise states that a party's contractual obligation is discharged only if certain conditions are met:
"The object must be so completely the basis of the contract that, as both parties understand, without it the transaction would make little sense. ... The frustration must be so severe that it is not fairly to be regarded as within the risks that he assumed under the contract. ...The nonoccurrence of the frustrating event must have been a basic assumption on which the contract was made."
It certainly looks like your situation meets all these conditions. Even if you have the money to pay the bus lines and hotels, paying them makes little sense. The loss to you would be so severe as to be regarded as not within the risks you assumed, and you must have assumed that there would not be anything like a pandemic that would result in the convention being canceled.
You may have to wait to get sued so that a judge can rule on the validity of your frustration of purpose defense, but I believe you would have a good chance of prevailing.