How Will Coronavirus Affect Contractual Relationships and Obligations?

The coronavirus pandemic has disrupted practically every aspect of American life. Whether closed by government order or by concerns about public safety, millions of businesses around the country have seen their operations come to a halt. Despite the overwhelming effect of COVID-19, it is not a certainty that an “Act of God” clause in a business contract will enable a party to ignore its obligations under the agreement. Many contracts include force majeure provisions that account for situations where an outside event prevents a signatory from fulfilling contractual duties. If you’re thinking of relying on this type of provision to justify nonperformance or if a party to an agreement is invoking a COVID-19-related Act of God clause against you, here are some factors to consider:

  • Terms of the agreement — As in any contract interpretation matter, it’s critical to examine the document to see if a pandemic is mentioned specifically or generally as an event that would affect the parties’ rights. For example, the collective bargaining agreement between the National Basketball Association and its players’ union specifically refers to “epidemics” as a force majeure event that allows the league’s owners to withhold salary and potentially revoke the entire agreement.
  • Impossibility vs. difficulty — Many unexpected things can drastically alter the feasibility of meeting one’s contractual obligations. However, just because something has become more difficult, economically impractical or even dangerous, that does not justify the use of an Act of God exception. Even in a relatively recent case involving a highly contagious disease, Morocco wasn’t able to invoke force majeure to escape liability after it canceled a 2015 soccer tournament while the Ebola virus afflicted West Africa. Though holding the tournament might have been unwise and costly, the Court of Arbitration for Sport ruled that it was not impossible.
  • Foreseeability — Another consideration when a party seeks to defend its nonperformance by claiming an Act of God is whether the circumstance was foreseeable. Financial downturns (even severe ones), shipping problems, material shortages and other situations affecting contract fulfillment are usually considered foreseeable. In fact, some agreements specifically exclude common problems that might lead a contract partner to invoke a force majeure 

The unique nature of the COVID-19 pandemic has thrust all of America into uncertainty. Counting on Act of God language to relieve you from your legal duties might not be a sure bet, even if you believe you have a compelling case. Taking prompt steps to communicate with contract partners might be a better way to reach a solution that acknowledges the harm that was done and modifies certain rights and obligations. By working with a skillful, creative business lawyer, you might be able to avoid a serious conflict over how force majeure is defined in your situation. If consensus cannot be reached, your attorney can advise whether you might succeed in a legal action.

Contact a business law attorney to schedule a meeting 

Hamilton Law, PLC counsels business clients on various legal concerns. Please contact the firm online to make an appointment for a consultation.

Contact us

Please fill out form below and one of our attorneys will contact you.

!
!
!

Our Office

Choose a location to review

Hamilton Law, PLC locations:

Ratings & Reviews

  • 5.0/5.0

    I highly recommend Hamilton Law. Ean is extremely knowledgeable in matters of estate planning and trusts. She is very thorough, answered all of our questions and made the entire process easy and painless. We had big decisions to make and sh...
    Show More

    — Cheri Smith

  • 5.0/5.0

    I was MOST impressed with Ean's work! I was referred to Ean by a friend and her professionalism and know-how helped ease my anxiety related to my parents' home. She was responsive and made the will creation easy. I highly recommend using Ea...
    Show More

    — WHITNEY WEATHERS

  • 5.0/5.0

    Ean is so great! Professional and extremely thorough. I had no idea where to start with a prenup process and felt quite lost. Ean made me feel supported through the process and was able to bring me (and my partner) great ease. She explained...
    Show More

    — Carla Fernández-Soto

  • 5.0/5.0

    Ean was absolutely great to work with! I had quite a few questions with the estate documents that were created for my husband and I. She was very patient and quick to answer all of my questions. Ean is very helpful and very knowledgeable, a...
    Show More

    — Christina VanderWeele

  • 5.0/5.0

    I would recommend Hamilton Law for any small business matters. They were helpful, professional, and kept me informed each step of the way as I was starting up my rental venue. They formulated a venue rental agreement for my business and w...
    Show More

    — Barbara Schudel