Contract law offers contracting parties a defense against performing under a contract where the fulfillment becomes impossible due to unforeseen events outside the parties control. These unforeseen events are often called “force majeure” or “acts of god.” With each passing day, the government, in response to COVID-19, is imposing more restrictive containment measures. These measures are likely to affect the parties’ workforce and supplies needed to perform the contract.
The question that is likely to be litigated is whether or not the current pandemic was unforeseeable and therefore, performance should be excused under existing contract law.
Parties are free to negotiate and include in their contracts who would bear the risk of these events using a force majeure clause. In other words, businesses need to review their existing contracts to see if they assumed the risks associated with “acts of god,” like governmental ordered shut-downs caused by the COVID-19 pandemic. Outside counsel will be helpful to businesses so they may understand their contractual rights and offer legal and business strategies during this trying time.
If the contract does not have a force majeure clause, businesses should seek legal advice in order to determine whether or not the force majeure legal doctrine could excuse non-performance of a contract. Although, pandemics have occurred in the past and an argument can (and likely will) be made that the COVID-19 virus was foreseeable and therefore not subject to the force majeure defense. On the other hand, the longer the emergency declaration goes on and more restrictive measures imposed by the government in response to the virus, the more likely the force majeure defense will be applicable. Because we are in uncharted territory and there is not a lot of case law dealing with the application of force majeure defense in pandemics it is likely the issue will be litigated.
After the pandemic ends, businesses need to review their contracts with capable counsel to include provisions that place the burden of future acts of god on the other party. While it is too late to re-write your contracts, going forward it makes sense to learn from this and address it.
