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Texas A&M Law Review

Document Type

Article

Abstract

At the heart of most of the systemic problems currently confronting individuals and businesses as a result of the COVID–19 pandemic is quite literally a contract. Housing. Insurance. Food. Health care. Child care. Employment. Manufacturing. Construction. Supply chains. You name it. Contracts are implicated everywhere. So make no mistake: How contract law addresses these ostensibly private contracts will have profound social consequences. If the past really is prologue, then the future is indeed bleak. The empirical study conducted for this Article establishes what the conventional wisdom has claimed for the last 70 years. More specifically, the empirical study here shows that the common law’s changed circumstances doctrines (“CCDs”)—namely, impossibility, impracticability of performance, and frustration of purpose—will generally not excuse a party from performing his obligations under a contract, regardless of the changed circumstance he alleges. Contrary to all the CCD literature that addresses this issue, this Article makes the unconventional argument that the CCDs should be more broadly available, meaning they should be more successful in excusing contract performance when triggered by catastrophic circumstances. And unlike the rest of the field, which focuses on the CCDs themselves, this Article argues that to effectively address the allocation of unforeseen risks in general and catastrophic risks like a pandemic in particular, we must reframe the legal approach to contract formation. From there, given that the solution to the changed circumstances problem preferred by courts and commentators is an explicit risk-allocation term in the parties’ contract, the solution proposed in this Article to the risk-allocation problem literally suggests itself. A risk-and-loss-allocation clause should be mandated in most contracts as a part of contract formation. The type of risk-and-loss-allocation clause and how the clause would work would depend on whether the contract is co-drafted or adhesive. Generally, the inclusion of a risk-and-loss-allocation clause would facilitate transactions and encourage contracting by ensuring that contracts remain efficient and predictable. The main difference between the risk-and-loss-allocation clause proposed here and existing contract law, of course, is who ends up bearing all the risk and loss occasioned by the catastrophic changed circumstance. To be clear, if nothing changes and our approach to contract formation remains the same as it is right now, then all of the risk and all of the attendant loss will generally be left to lie where it falls—namely, on the party trying to get out of the contract because of the changed circumstances—and this will be the result regardless of the legal theory used to justify (or demonize) the CCDs or any changes made to the doctrines themselves. But if we finally acknowledge the public aspects of contracts and contract law, namely, that they do in fact produce social consequences that extend beyond the individual contract and contracting parties, then contracts and contract law may well be part of the solutions to some of the most pressing problems currently confronting American society now and into the future.

DOI

10.37419/LR.V9.I2.2

First Page

347

Last Page

403

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