The Volokh Conspiracy
Mostly law professors | Sometimes contrarian | Often libertarian | Always independent
(Post coauthored with Caprice Roberts.)
The COVID-19 pandemic will lead to a great deal of litigation concerning contractual nonperformance, as well as many hypos on any 1L contract exams that may be remotely administered. One question of particular interest to those in universities is whether universities that have required most or all of their students to leave their dormitories will need to refund money paid for the term. Another question is whether universities conducting distance learning are breaching tuition continuity of instruction, but liability for failing to provide contracted-for room and board seems to be more likely. Students are already making such demands.
A number of law firms have produced useful overviews of the general applicable law. The first question is whether there is a force majeure clause in the relevant contract. If so, the question becomes whether COVID-19 in fact counts as a "force majeure." Eugene's neologism "force mineure" highlights that COVID-19 differs from acts of God like hurricanes and earthquakes, but perhaps not in a way that the courts will think meaningful. Of course, some contracts might contain more specific definitions of "force majeure," or specify other conditions in addition to "force majeure," such as "epidemic."
We haven't performed a systematic survey of university housing contracts, many of which are not easily found online. It appears that Pepperdine's lawyers win the foresight award, having explicitly provided in their contract, "Refunds will not be granted for temporary suspension of housing services that result from an emergency, act of God, force majeure, or other exigency." Similarly, Stanford's contract provides, "The university assumes no responsibility for failure to perform any terms or conditions of this Residence Agreement due to any force majeure. For purposes of this Residence Agreement, the term 'force majeure' shall mean … pandemic …." Perhaps it's not entirely clear, however, that "assumes no responsibility for failure to perform" means "will not give refunds in the event that students are forced to leave their dorms."
The relatively small number of search results turning up such clauses, however, suggests that many University housing contracts do not contain them. Harvard's housing contract, for example, appears to have no applicable provisions. Perhaps this is why Harvard has informed students that it will prorate room-and-board costs. Our own university has similarly promised, "Residential students will receive a credit to their student account at the nightly rate of their unit type for the period in which the university is operating under the instructional continuity period." Of course, if all universities without force majeure provisions take such positions (or allow students to stay in their residence halls, even if recommended not to do so), litigation might be averted. But some universities have been less clear, at least on their websites (e.g., here and here).
If there is no force majeure clause, or if the clause is ambiguous, then universities have a potential fallback: the doctrine of contractual frustration. Saul Litvinoff offers this explanation:
Frustration arises when unforeseen events, occurring after the time of contracting, render performance either legally or physically impossible, excessively difficult, impracticable, expensive, or when they destroy the known utility which the stipulated performance had to either party. In the latter instance, that is, when unforeseen events do not so much make the performance impossible as they make it impossible for the parties to acquire or enjoy the advantage for whose acquisition or enjoyment they entered the contract, the expression 'frustration of contract' becomes synonymous with 'frustration of purpose.'
Saul Litvinoff, Force Majeure, Failure of Cause, and Theorie de L'Imprevision: Louisiana Law and Beyond, 46 La. L. Rev. 1, 10-11 (1985). The problem for universities is that contractual frustration is narrowly applied, and it is difficult to see how a housing contract becomes impossible to perform, at least unless a state mandates that students leave university housing. Perhaps a university can argue that without in-person education, the "known utility" of student housing is lost, but student housing's utility is not all in its proximity to classes. Perhaps a university's strongest argument is that performance is impossible because keeping students in their crowded housing would be unsafe, to the students and to the community. It helps that this does appear to be the justification for university nonperformance, whether or not the students or the community in fact are better off returning to their respective homes and communities.
Perhaps the most interesting question is what happens if contractual frustration doctrine applies. This does not necessarily mean that the university is free of the obligation to produce refunds. Rather, the law of restitution applies. The theory is that in the absence of a contract, both parties need to be returned to the status quo ante, to the extent possible. Let's consider how this would work in an ordinary service context:
Smith promises to paint Brown's factory for $100,000, a fire destroys the factory after Smith has incurred costs of $30,000 and received progress payments of $20,000. Should Brown get back any of his $20,000? Should Smith be compensated for any of the costs that he has incurred? …. The American and post-Fibrosa English default rule would return Brown's $20,000, and, maybe, require that Brown compensate Smith for at least some of his costs incurred in reliance.
Victor P. Goldberg, After Frustration: Three Cheers for Chandler v. Webster, 68 Wash. & Lee L. Rev. 1133, 1135-36 (2011). A plausible calculation is that students would receive a refund on their housing but would then have to pay fair market value for any housing actually received. It seems unlikely that the university has any reliance analogous to the costs of Smith in the above example. So the end result may be more or less the same as if the university reimburses students pro rata.
In his article, Goldberg suggests that we should return to the regime of Chandler. That case dealt with contracts for viewing the coronation procession of Edward VII, frustrated when the procession was postponed as a result of appendicitis. Its rule was to let everything lie where it was, so payments already made would not be refunded, and there would not be any reimbursement for, say, expenses undertaken by those renting out their premises making them suitable for use. If the old rule applied today, then a university successful in convincing a court that contractual purpose was frustrated would likely be able to escape obligation to refund student money (but would be out of luck in the unlikely event that students had not yet paid). The virtue of that rule is that it is likely to lead to less litigation.
Modern restitution law would not favor a return to the old approach. Public policy reasons may well justify excusing contractual breaches and releasing universities from contractual obligations. Restitution's goal is to undo any unjust enrichment. Here, if frustration of purpose applies, the contract comes to an end and the university has its dormitories back in their possession while students are out monies paid for the whole term. A pro rata refund would rectify the unjust enrichment.
This discussion does not address all possibly relevant issues, let alone variations in law from state to state. State landlord tenant law may play a role. Meanwhile, courts might consider public policy concerns. Ordinarily, public policy would come into play in argument that a contract might be void for public policy grounds, but one imagines that courts might be generous to universities on the ground that public policy made their actions necessary. Dave Hoffman has relatedly argued that courts should not enforce cancellation fees imposed by hotels on organizations cancelling conferences.
(Our views, of course, do not necessarily represent those of George Washington University.)