In September of 1916, the Connecticut Fair Association breached its contractual obligation to “promote and manage a baby show” where “babies were in some manner to be exhibited.”
Walter Hanford, who was to have supplied the infants for the show, sued.
Ordinarily, Hanford v. Connecticut Fair Ass’n would have been a straightforward breach of contract case.
But 1916 was no normal year: New York City saw its first cluster of poliomyelitis, a virus that mostly affected children, often paralyzing or killing them.
Indeed, the disease was “so widespread and so serious as to make assemblies of children . . . highly dangerous to the health of the children of the community, and by reason of said facts it was contrary to public policy to hold a baby show of the nature.”
The Association breached the contract—allegedly—to slow the spread of the fearsome virus.
Nevertheless, Hanford, suing for damages, had a seemingly easy case: The Association’s performance was neither impossible nor impracticable. Moreover, the contract was clear: The defendant’s obligation to pay was “absolute and unqualified.”
In other words, even if it breached the contract to further the public’s interest, the Association still owed Hanford money.
In a passage with special resonance in 2021, the court disagreed. It would neither
require the performance [n]or award damages for a breach of a contract in which the public have so great an interest as the preservation of health, if the health is in fact endangered, no more than it would require one to be performed the tendency of which was immoral, or which interfered with the right of [everyone] to earn a livelihood by a lawful occupation . . . . The baby show . . . would be highly dangerous to health, and this is just what the parties have agreed to promote and carry out for their mutual profit.
There is no general public health exception to contract enforcement—but the court found one.
And while the cases on how to adjudicate excuse based on public health risks are rare,
Hanford is not the only example of its kind. Cases considering public health distortions of ordinary contractual doctrine have resulted from nearly every epidemic of the last two centuries.
Hanford and other cases excusing, reinterpreting, and reforming performance obligations on public policy grounds show how the public’s interest interacts with private contracting. On a daily basis, private parties enter into contracts—to use a website, lease an apartment, host a family reunion, or merge two companies into one. And while seats at the contract-negotiation table are primarily occupied by the contracting parties themselves, one spot is always implicitly reserved for another party: the public.
Others have written compellingly about the impact of the public on private contracts.
Scholars have described divorce as a “bargain in the shadow of the law,”
for instance, and a corporate acquisition as a deal with “three parties . . . at the . . . table: the buyer, the seller, and the government.”
This Essay adds an important twist to that literature and updates it for the current pandemic climate. It focuses on the ways that private law’s contracts become public law’s charges.
Contracts flourish when the externalities they create—which are inevitable—are acceptable to the public.
The government monitors that acceptability through three main mechanisms: limits on the subject of contracts, regulatory intervention, and the contract-enforcement process in courts. If a contract survives the scrutiny of the first two types of gatekeeping, the third usually offers only superficial review: Courts almost always enforce contracts even when they create third-party harms.
Contract enforcement remains the norm today. Corporate lawyers, for instance, have rushed to assure their clients that their contracts will be enforced as written, even in the current pandemic.
In a client alert, law firm Willkie Farr & Gallagher noted that courts tend to “construe force majeure provisions narrowly”—thereby suggesting that parties could not expect to back out of contracts using force majeure clauses.
Law firms Sidley Austin and White & Case offered similar advice.
Meanwhile, other major law firms have also advised their clients that the increased cost of performing a contract does not excuse contract performance,
with some noting that pandemics may not be considered unforeseeable.
In other words, the COVID-19 pandemic poses no special problems for contract law, at least according to its most sophisticated practitioners.
We disagree. Sometimes, private parties’ performance of their contracts greatly increases the negative externalities borne by the public, in ways no one contemplated when the contract was formed. In the past, when the public’s share of the burden has increased dramatically, particularly in the case of disease, courts have declined to enforce contracts as written. Instead, courts have sometimes reformed contracts to ensure that the burden borne by society is acceptable.
The COVID-19 pandemic is another moment when ordinary contracts have become extraordinarily risky for the public.
Gatherings—which some contracting parties have not canceled due to a fear of lost deposits, for instance—have caused clusters of viral spread in many communities. Now-infamous examples include a corporate conference in Massachusetts,
a funeral and subsequent birthday party in Chicago,
a church service in Daegu, South Korea,
and a choir practice in Washington State,
which have all been identified as events that caused widespread disease. Contracts for future performance—like the residential housing agreements signed by many college students over the summer of 2020—brought people together into close proximity and spread disease.
This Essay makes two contributions to the literature.
The first is theoretical. Building on literatures in contracts, contract design, and other fields, it shows how the public participates in private contracting. It focuses particularly on the final gatekeeping function of courts, which usually enforce—but can reform—contracts. We suggest that the limited cases in this area can be understood as advancing a special defense to obligation, denying obligation due to public policy based on increased social costs. This defense is distinct from ordinary public policy analysis because it arises postformation, and differs from impracticability and frustration doctrines because the costs it relates to are public, and not private.
The second contribution is practical. In extraordinary times, courts sometimes do not enforce contracts as written in an effort to protect public health. Instead, courts turn to half-loaf and compromise solutions, including contract reformation and more equitable damage remedies. When deciding whether to perform contracts—or to hold counterparties to performance—parties should realize that previous courts can and have embraced compromise, rather than rote enforcement. Newly dominant modes of dispute resolution make such solutions more likely than ever.
The remainder of this Essay proceeds as follows. Part I shows how the public influences private contracts through three main mechanisms: ex ante definition of legally permissible subject matter for private bargains, regulation, and contract interpretation. Part II focuses on the contract interpretation piece. It shows that in response to contracts that increase the public’s risks, courts have sometimes reformed, rather than enforced, contracts. Public health crises, like the current pandemic, are particularly salient in this set of cases: Courts excuse performance or reach for interpretations that align with equitable solutions. Part III discusses implications, including remedies for breach. In the modern litigation environment, which is dominated by mass adjudication through nontraditional tribunals, courts are unlikely to take a textual approach to enforcing contracts breached during pandemic times. Instead, they will likely dole out rough justice through arbitration and like fora that promote compromise, all but ensuring that breachers will not be held to the specific damages of any particular individual contract.