Can You Get Out of a Contract Because of the Coronavirus (COVID-19) Pandemic?
As the coronavirus pandemic has disrupted many businesses, with some filing for bankruptcy as a result of plummeting revenue, many business owners may wonder, “Can I get out of a legally binding contract due to the pandemic?”
Typically, a party cannot just terminate a legally binding contract for any reason or no reason at all, as such actions would trigger business litigation. The COVID-19 pandemic, and especially statewide and nationwide shutdowns, quarantine, and stay-at-home orders, could make it difficult – or even impossible – for parties to perform their contractual obligations.
But what are your options if the performance of obligations under a contract is not possible due to the coronavirus outbreak? Can you use the legal defense of “force majeure” or an “act of God” to relieve yourself of contractual obligations or get out of the contract altogether?
Can You Terminate a Contract During the Coronavirus Pandemic?
Whether or not you can use the doctrine of “force majeure” to get out of a contract without facing legal consequences depends on a variety of factors, including the nature of your obligations, the specific wording in the contract, as well as the extent to which the pandemic affects your business.
Whether you can terminate a contract due to the coronavirus pandemic depends on:
- The wording in your contract and whether it contains the “force majeure” clause or other legal concepts;
- Whether your particular circumstances permit utilizing the force majeure clause;
- The extent to which the pandemic prevented you from performing your obligations; and
- Whether you could have taken any reasonable measures to mitigate or reduce the effect of the outbreak on your ability to perform.
It is advised to review your contract in the presence of a knowledgeable West Palm Beach business litigation attorney before asserting the force majeure clause or getting out of a contract altogether.
What to Do if Your Contract Does Not Contain the Force Majeure Clause?
While it may seem that all contracts contain a force majeure clause, it is not entirely true. Many contracts do not contain force majeure or “act of God” provisions, which makes it more difficult to get out of a contract during an unanticipated event such as a pandemic.
If your contract does not contain these provisions, or your particular circumstances do not warrant the use of these clauses, the doctrine of “frustration of purpose” may apply. Either party can assert the doctrine if the central purpose of the contract has been “frustrated” by the pandemic or any other event.
However, the party asserting “frustration of purpose” must prove that the parties could not have reasonably anticipated the event (the pandemic, in our case) at the time of signing the contract.
The timing of contract formation is a critical factor when determining whether the doctrine of “frustration of purpose” will apply to get out of a contract. For example, those who signed the contract after the World Health Organization declared the coronavirus outbreak a pandemic on March 11, 2020, may have a hard time asserting “frustration of purpose.”
Every contract is unique, which is why you should talk to a West Palm Beach business litigation lawyer at Pike & Lustig, LLP, to determine whether you can terminate your contract during the coronavirus pandemic. Call at 561-291-8298 for a case evaluation.