Can COVID-19 Excuse Performance Under a Business Contract?
In many businesses and commercial business contracts, there are a seemingly unending list of paragraphs and legal language, much of which is standard from contract to contract. Among these “boilerplate” conditions, is what is known as the Force Majeure clause. It is written into almost every business contract, but it is rarely needed or used. However, the recent Coronavirus has brought this obscure clause into the limelight.
What is Force Majeure?
The Force Majeure clause is often called the “Acts of God” clause, because that’s what the content of this contractual clause says. It excuses a party from performance under the contract, if there is an intervening act of god that makes completion of a party’s contractual duties impossible or impracticable.
Examples of events where the Force Majeure clause would come into play include natural disasters, riots, disease/pandemic, terrorism, or civil unrest.
The words “Acts of God,” is not always literal—for example, if a government closes all businesses because of COVID-19, that may be an act of God under the Force Majeure clause, even though the decision to close is obviously coming from human beings in government.
The clause recognizes that neither party can account for when these Acts of God may happen, or how severe they may be, and thus, the parties cannot meaningfully contract to take these events into account.
Example of Force Majeure
Let’s look at an example of when a Force Majeure clause may come into play. Let’s assume your business is going to hold a seminar or an event at the local community center. A week before your event, a global pandemic strikes, closing down every business, and making the holding of any type of large gathering impossible (if not illegal).
In this case, your organization or business would be able to cancel your event, without owing money to the community center, and the community center where you were going to hold your event would not be able to sue you for nonperformance.
Litigation over Force Majeure
Because Force Majeure clauses appear in such a wide variety of contracts, it is likely that there will be much litigation over these clauses, and the wording of the clauses will be highly scrutinized by courts. Businesses that expected revenue will want to enforce their contracts, and businesses that were not able to fulfill their obligations will want to be excused from performance because the pandemic makes performance impossible.
That COVID-19 is an “Act of God” is probably very likely (as far as the law is concerned). But courts will also look to whether the event was foreseeable, and whether COVID-19 really makes performance of the contract impossible. These two areas are where most of the argument will be in contractual disputes over Force Majeure clauses and COVID-19.
Consult with our West Palm Beach business litigation attorneys to discover your options. Let our lawyers at Pike & Lustig, LLP, help you with your business contract disputes. Call us at 561-291-8298 to get a consultation.