COVID-19’s Impact on Contractual Relationships and Obligations
In follow up to a previous discussion on force majeure provisions, we reviewed how Coronavirus will affect contractual relationships and obligations. The unique nature of the COVID-19 pandemic has thrust all of America into uncertainty. Relying on Act of God language to exempt you from your legal responsibilities might not be a sure bet, even if you believe you have a convincing case. Taking steps to connect with contract partners might be a better way to reach a resolution that recognizes the harm that was done and modifies certain rights and obligations. By working with a skilled business lawyer, you might be able to avoid a significant conflict over how force majeure is defined in your situation. If a compromise cannot be reached, your attorney can assist you in ascertaining whether you might succeed in a legal action.
The coronavirus pandemic has interrupted nearly every aspect of American life. Many contracts include force majeure provisions that account for situations where an outside event prevents a signatory from fulfilling contractual duties. If you are considering 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 ponder:
- 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 are typically deemed foreseeable. In fact, some agreements specifically exclude common problems that might lead a contract party to invoke a force majeure.
- Impossibility vs. difficulty — Many unexpected occurrences can radically alter the practicability of meeting one’s contractual commitments. However, just because something has become more challenging or economically unfeasible, that does not rationalize the use of an Act of God exception. An attorney can assist you in ascertaining whether an occurrence has wholly precluded you from meeting your contractual obligations.
- Terms— Its imperative to examine the contract document to see if an epidemic is mentioned explicitly or just generally as an event that would impact the parties’ rights and obligations. For reference, 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 wages and possibly rescind the entire collective bargaining agreement.
Call HoganWillig’s Business Department at (716) 636-7600 if you have any questions about the information discussed here or with any other questions you may have.
DISCLAIMER: This article has been published as a service to the general public and as such, is intended for general purposes only. The information contained within this article should not be considered and/or construed as legal advice. Each reader is advised to consult legal counsel to determine how the contents of this article may apply to their particular facts and circumstances.
For changing and up-to-date legal information, visit our COVID-19 Resource Center.