By: Michael Hollingsworth, Attorney, Nichols Zauzig
As the Coronavirus continues to spread, we’re beginning to see cancellation of travel for business and leisure activities. As we approach wedding season, we must start asking whether the coronavirus would require a refund of deposits put toward an upcoming event.
In legalese, the question would be phrased as whether performance under a commercial contract (such as one for a wedding, awards ceremony, Baptism, Confirmation, First Communion, Bar/Bat mitzvah, etc.) is excused because of coronavirus, and whether one who has paid a deposit is entitled to refund or restitution.
Courts in Virginia and elsewhere start to answer this question by first looking at the terms of the contract itself. The easiest and cleanest way to resolve such an issue is to bargain for it in the first place. But many contracts used by vendors and businesses are poorly drafted and do not contain so-called “force majeure” provisions. Even if the contract does contain a force majeure clause, it may be worded poorly or inadequately for the situation at hand. This is why even small family businesses need to consult an attorney to assist in contract drafting.
In the absence of a provision in the contract, the courts will use other law to provide an appropriate remedy. The basic doctrine the court would apply is known as “frustration of purpose or impossibility.” This is an “equitable remedy” meaning money damages cannot sufficiently cure the injured party (like an injunction). This remedy is available when an event or condition arises that makes one side’s performance either completely impossible or worthless to the point it defeats the purpose of the contract. The “purpose” must be the basis for the contract such that at the time of the initial agreement, without that purpose there would be no reason to have a contract at all. For example, a business hires a band to perform a concert but the government bans all concerts. The business should be excused from paying the band.
If the court allows frustration of purpose or impossibility as a remedy and a party has paid a deposit, the court could apply another doctrine known as restitution. This doctrine is used to prevent one party from being unjustly enriched at the expense of the other. The amount of restitution will depend on the facts of the particular case and whether the one who received the deposit already took reasonable steps toward its own performance to its own financial detriment. Often, businesses will voluntarily issue refunds in clear cases of impossibility to maintain good standing in the community. A recent example is Old Ebbitt Grill refunding paid attendees to its annual “Oyster Riot” to be held at Nationals Park when it could not take place because the Nationals made it to the World Series.
As a consumer, before calling your vendor and insisting on a full refund, first check your contract or agreement. You must be careful about asserting claims or defenses because the very act of doing so could be a breach of the contract entitling the other side to damages. We also do not know yet how far into the future the Coronavirus will have an effect.
Contact me at 703-492-4200 for any questions about how the Coronavirus impacts your upcoming event deposit, travel refund or other legal issues. The disappointment of having to cancel a momentous occasion or trip is unpleasant enough. Feel free to reach out for assistance in figuring out the legal implications.