Can An Epidemic Make Contractual Obligations Impracticable? The Potential Viability Of Ebola-Related Defenses To Contract Enforcement

What happens when a party to a contract asserts an inability to perform based on circumstances beyond its control? An Ebola outbreak, or even a single case, could make it difficult for healthcare providers to meet contractual obligations. The Texas hospital that treated Thomas Eric Duncan suffered a massive drop in business following news of Mr. Duncan's treatment, with approximately two-thirds of its beds empty and patients cancelling professional appointments in droves. That kind of sudden drop off in revenue could cause strain on existing contracts, particularly if the contracts contain outputs or requirements provisions. Another possible conflict could arise if a supplier to a healthcare provider is unable to meet its contractual obligations if an outbreak causes a spike in demand for a particular product. Whether you are seeking to enforce another party's contractual obligations or looking for relief from your own, the defense of impracticability may arise.

Under well-settled principles of contract law, "contract liability is strict liability . . . [t]he obligor is therefore liable in damages for breach of contract even if he is without fault and even if circumstances have made the contract more burdensome or less desirable than he had anticipated."1 As is often the case with the law, however, the rule is not absolute. The doctrine of impracticability provides for the discharge of contractual liability where an impeding event has occurred and the non-occurrence of that event "was a basic assumption on which the contract was made."2 The Restatement (Second) of Contracts lays out the contours of this concept:

Performance may be impracticable because extreme and unreasonable difficulty, expense, injury, or loss to one of the parties will be involved. A severe shortage of raw materials or of supplies due to war, embargo, local crop failure, unforeseen shutdown of major sources of supply, or the like, which either causes a marked increase in cost or prevents performance altogether may bring the case within the rule stated in this Section. Performance may also be impracticable because it will involve a risk of injury to person or to property, of one of the parties or of others, that is disproportionate to the ends to be attained by performance. However, "impracticability" means more than "impracticality." A mere change in the degree of difficulty or expense due to such causes as increased wages, prices of raw materials, or costs of...