Is It a Breach of Contract If a Wedding Vendor Is Legally Stopped From Performing Due to Covid?
A Contract That Becomes Impossible or Legally Forbidden Due to An Unforeseen and Uncontrollable Circumstance Is Known In Law As a Frustrated Contract. When a Contract Becomes a Frustrated Contract Further Obligations Under the Contract Are Usually Nullified.
A Helpful Guide For How to Determine and Understand What Happens to Contracts Made Impossible By the Covid Crisis
When a contract becomes frustrated, which is what the law says happens when an unforeseeable and uncontrollable incident or situation, like a pandemic, makes a contract impossible to comply with, and fulfill, the parties to the contract are relieved from further obligations of the contract and any monies paid in advance, such as deposits unearned without services yet rendered, the deposit monies become refundable. The nullification of obligations within impossible to perform contracts are statutorily prescribed by the Frustrated Contracts Act, R.S.O. 1990, c. F.34 which states, among other things:
Application of Act
2 (1) This Act applies to any contract that is governed by the law of Ontario and that has become impossible of performance or been otherwise frustrated and to the parties which for that reason have been discharged.
(2) This Act does not apply,
(a) to a charterparty or a contract for the carriage of goods by sea, except a time charterparty or a charterparty by way of demise;
(b) to a contract of insurance; or
(c) to a contract for the sale of specific goods where the goods, without the knowledge of the seller, have perished at the time the contract was made, or where the goods, without any fault on the part of the seller or buyer, perished before the risk passed to the buyer.
Adjustment of Rights and Liabilities
3 (1) The sums paid or payable to a party in pursuance of a contract before the parties were discharged,
(a) in the case of sums paid, are recoverable from the party as money received for the use of the party by whom the sums were paid; and
(b) in the case of sums payable, cease to be payable.
(2) If, before the parties were discharged, the party to whom the sums were paid or payable incurred expenses in connection with the performance of the contract, the court, if it considers it just to do so having regard to all the circumstances, may allow the party to retain or to recover, as the case may be, the whole or any part of the sums paid or payable not exceeding the amount of the expenses, and, without restricting the generality of the foregoing, the court, in estimating the amount of the expenses, may include such sum as appears to be reasonable in respect of overhead expenses and in respect of any work or services performed personally by the party incurring the expenses.
(3) If, before the parties were discharged, any of them has, by reason of anything done by any other party in connection with the performance of the contract, obtained a valuable benefit other than a payment of money, the court, if it considers it just to do so having regard to all the circumstances, may allow the other party to recover from the party benefitted the whole or any part of the value of the benefit.
(4) Where a party has assumed an obligation under the contract in consideration of the conferring of a benefit by any other party to the contract upon any other person, whether a party to the contract or not, the court, if it considers it just to do so having regard to all the circumstances, may, for the purposes of subsection (3), treat any benefit so conferred as a benefit obtained by the party who has assumed the obligation.
There is an exception to the Frustrated Contracts Act that can, in very rare situations, make the Frustrated Contracts Act inapplicable. Where the Frustrated Contracts Act may be inapplicable, and therefore where contract obligations may remain in force, is where a contract specifically addressed the issue of a 'pandemic' and stated something to the effect that in the event of a pandemic the contract would stay alive rather than become frustrated by the Frustrated Contracts Act and that some alternative for what became impossible must take place instead. Luckily, for brides and grooms, contract clauses that negate or limit application of the Frustrated Contracts Act, and may at first appear to keep a wedding contract with a banquet hall or other vendor alive, may be extinguished by the Consumer Protection Act, 2002 instead.
Refund Required For Deposit Monies
As above, if a contract becomes impossible to perform, due to reasons out of the control of the parties to the contract, such as due to a statutory prohibition or another Covid-19 circumstance causing impossibility and therefore frustration of contract, then the contract obligations are nullified and the parties are exempt from performance of the contract. Furthermore, in almost all cases, the Frustrated Contracts Act will require the return of monies paid in advance such as deposits.
Partially Performed Services
Where a wedding supplier may have incurred expenses or provided benefits prior to the frustration of a contract, the wedding supplier is entitled to keep a portion of any deposits paid. Where this occurs, and despite that the parties are likely exempt from further contractual obligations, the law applicable to unjust enrichment and quantum meruit may apply and thereby result in some monies being payable. In law, the principle of quantum meruit, which is a Latin term, essentially means, for what it is worth.