Since the World Health Organization declared that the COVID-19 outbreak is officially a pandemic, governments have reacted, disaster plans have been implemented, and “social distancing” has become the new norm.
It goes without saying that the COVID-19 pandemic has had wide-ranging economic impacts and will continue to do so for the foreseeable future. During difficult times it is not always possible to fulfill your contract, but courts recognize this and can excuse parties from their obligations under certain circumstances. Extreme situations that are outside of the control of the parties, known as force majeure events, can make the performance of a contract impossible or impracticable.
Many contracts contain a force majeure clause detailing what categories are covered by the clause and what to do in case of unforeseeable events. Contracts typically define force majeure events to include natural disasters, war, civil unrest, lockouts, shutdowns, and strikes. Unfortunately, many force majeure clauses were not drafted to include pandemics specifically.
So the first lesson is to check your existing contracts carefully before deciding whether or not you are off the hook. Secondly, when entering into new contracts, make sure “pandemics” are specifically included in a force majeure clause.
What happens if your contract’s force majeure provision is open-ended and does not include pandemics specifically? Some contracts contain “acts of God” in their list of force majeure events. Courts have traditionally held that “acts of God” refer to natural disasters, but there is precedent from the U.S. Supreme Court that “sudden deaths and illnesses” are acts of God. (Gleeson v. Virginia Midland Railroad Co., 140 U.S. 435, 439 (1891). It is unclear, though, whether a court would rule that COVID-19 is an act of God.
More specific language in a force majeure clause such as “public health crisis” and/or “pandemic” would cover the present situation better. Better yet, rather than having to interpret a force majeure clause or determine what constitutes a “public health crisis” or a “pandemic,” language specifically referencing exceptions due to the coronavirus outbreak may be more helpful.
If there is no force majeure clause or “coronavirus clause” in your contract, your analysis should focus on whether the event was foreseeable at the time the contract was made; if not, you might be excused from performing under the agreement.
For example, the Uniform Commercial Code protects sellers who do not deliver goods when their performance is deemed impracticable “by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation” (UCC § 2-615(a)).
A party could argue that any contract made after December 2019 (or certainly after the WHO pandemic declaration of March 11, 2020) was made with knowledge of the virus, so there should be no excuse for non-performance. However, the response to this crisis has been unprecedented in the modern world and reactions have been swift and far-reaching. For example, nobody could have imagined suspending the NBA season until a player tested positive during a warmup session before a game.
In this uniquely trying time, it is unfortunate that we still must deal with commitments that are less important than our health and safety. If you have any questions about the relationship between COVID-19 and your contractual obligations, please reach out to one of the attorneys at Bell, Davis & Pitt.
John N. Hutson, III, a third-year law student at Wake Forest University and intern at Bell, Davis & Pitt, contributed to this article.