COVID-19 is obviously having a devastating effect on the health of many people around the world, and there has obviously been an immediate and destructive effect on many businesses, but the extent of the damage is still unknown. On the business side, what happens when a company is not able to complete its obligations under a contract with another party because of the current pandemic? What can that business rely on to protect itself from breach of contract claims filed by the other party which could seek significant damages?
Hopefully, the company’s contract includes a viable “force majeure” clause which might allow the company’s performance to be suspended or even excused due to some extraordinary event. Most important in any claim arising out of a contract is the contract’s language. Unfortunately, many contracts, even ones with force majeure provisions, do not explicitly reference a pandemic or other similar circumstance. A business may be able to rely upon contract language designating governmental orders or actions as force majeure events. However, some courts have required particularity in the descriptions of the events rather than general language; thereby requiring a specific reference to a pandemic in the contract. Moreover, the event in question must have been unforeseeable when the contract was entered into, the event has to have proximately caused the inability of a party to perform the contract, and the effects of the event must be severe enough to prohibit performance.
If the contract is for the sale of goods and there is no force majeure language sufficient to cover the event in question, the seller will have to be able to show that the event made performance impracticable or that it frustrated the purpose of the contract. However, some courts have been unwilling to consider those defenses where the contract has some force majeure clause in it, even if that clause is insufficient to excuse a party’s non-performance. Thus, contracts should be carefully reviewed by an attorney because the strength or weakness of its provisions and any force majeure clause in it may depend upon something as simple as the locale of the law governing the contract.
If you have a contract which you are not certain you can complete because of the COVID-19 pandemic, or if a party’s non-performance or incomplete performance is or will materially damage your business, or even if you need to enter into a contract during these uncertain times, call the experienced commercial litigators and contract attorneys at Leonard Sciolla. You can reach us at (215) 567-1530 or by email at [email protected]