WHAT IF YOUR ABILITY TO PERFORM CONTRACTUAL OBLIGATIONS IS MADE IMPOSSIBLE OR IMPRACTICAL DUE TO THE NOVEL CORONAVIRUS?
The phrase “force majeure” refers to unexpected external circumstances which prevent a party to a contract from meeting its obligations to perform. A party may be able to avoid liability for nonperformance by declaring force majeure. Examples of typical force majeure events include war, strikes, terrorist attacks, and natural disasters such as hurricanes, tornadoes or wildfires. The question of whether Covid-19 qualifies as a force majeure event is uppermost on the minds of parties for whom performance of their contractual obligations becomes impossible or impractical due to the impact of the virus.
DOES THE COVID-19 OUTBREAK QUALIFY AS A FORCE MAJEURE EVENT?
The short answer is maybe, and you would need to review the specific language in your contract to make that determination.
Many contracts contain force majeure clauses which outline the circumstances under which a party may be relieved from liability if its nonperformance is due to a force majeure event. The events covered by a force majeure clause depend on the specific language of the contract, but generally, an event must be both outside of the control of the parties and unforeseeable. Such clauses typically define what events qualify as force majeure, address or limit the remedies available to the contracting parties, and state the actions required of a party seeking to take advantage of those remedies. A force majeure clause may limit its application to circumstances which render performance impossible, or expand its application to circumstances which render performance impractical or ill-advised by authorities.
Oftentimes, a contract will include a non-exhaustive list of force majeure events, including natural disasters such as floods, tornadoes or hurricanes; war; acts of terrorism; and government actions which prevent performance. Few contracts include disease, epidemics or pandemics in the list of force majeure events, although an increasing number of contracts have done so in the wake of the 2002-2003 Severe Acute Respiratory Syndrome (“SARS”)” epidemic. In the absence of specific contractual language addressing epidemics or pandemics, parties may turn to catchall provisions, which frequently include “Acts of God” or circumstances beyond a party’s control in the definition of force majeure events.
The effects of Covid-19 have caused a far-wider effect than SARS, resulting in worldwide disruptions to businesses and society as a whole. The World Health Organization has officially declared Covid-19 a pandemic, and the U.S. Center for Disease Control has stated that the Covid-19 virus is “a new disease, caused by a novel (or new) coronavirus that has not previously been seen in humans.” https://www.cdc.gov/coronavirus/2019-ncov/faq.html. The President has declared a national state of emergency due to Covid-19, and has approved some states’ (including Florida’s) requests to declare their state a disaster area. Numerous state and local authorities have issued stay-at-home orders, and have limited or banned large gatherings due to Covid-19. These factors would give strong support to an argument that Covid-19 is an act of God or a factor which is beyond a party’s control and was unforeseeable. The Covid-19 outbreak will doubtless cause many parties to seek cancellation of contracts, and give rise to litigation on the issue. Businesses may also want to consider revising the language of their contracts to specifically include viral or bacterial pandemics or epidemics to the list of force majeure events.
WHAT IF A CONTRACT DOES NOT CONTAIN A FORCE MAJEURE CLAUSE?
If a contract does not contain a force majeure clause, general principles of contract law may offer relief to a party for whom performance is rendered impossible or impractical. Florida, like most states, recognizes the defenses of impossibility, impracticability and frustration of purpose, which may be invoked to excuse a party’s performance under a contract under certain circumstances. Such defenses, however, are sparingly applied. For example, Florida courts have held that a steep decline in the market is not the sort of unforeseeable circumstance which falls within the doctrine of impossibility, as economic downturns are not truly unanticipated circumstances in a market-based economy such as that in the United States. It remains to be seen under which circumstances Covid-19, and its effects on the economy and society, will support such defenses.
Our team is available to help interpret the provisions in your situation and review our client’s contracts to determine whether they may still be enforceable in these uncertain times. To learn about more legal updates due to COVID-19, visit our COVID-19 Resources Page HERE.