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CONTRACTUAL OBLIGATIONS AND COVID-19:

FORCE MAJEURE

March 27, 2020

Instinctively, as we navigate the uncharted waters of this global pandemic, we first consider our health and well-being, as well as the health and well-being of those around us. Once all suggested precautions[1] have been taken, however, our attention might next turn to our job, business or, in some cases, contracts we’ve promised to fulfill.

For many, when first looking at a contract, our primary concerns are payment, quantity or amount, and timing. How much will I pay or get paid? What am I expected to deliver or what is being delivered to me? When can I expect these obligations to be fulfilled? If you retained or worked with an attorney, he or she would have scrutinized these provisions as well; however, presumably, he or she would have also included or ensured the inclusion of other legal provisions, many of which you may have heard referred to as “boilerplate”. Considering this terminology, such provisions are not often the stars of the show. Fast-forward to our current situation, however, and one of these “boilerplate” provisions is now center stage.

A force majeure provision is often included in contracts to excuse nonperformance or delayed performance, whether services or goods are being provided, due to events and circumstances outside the control of the performing party. Here is one example:

Neither party shall be liable for any costs or damages due to delay or nonperformance under this Agreement arising out of any cause or event beyond such party’s control, including, without limitation, cessation of services hereunder or any damages resulting therefrom to the other party as a result of acts of God, natural disaster, labor unrest, acts of war (declared or undeclared), terrorism, civil strife or acts of any governmental actor.

If your contract contains a provision such as the one above, nonperformance or delayed performance due to an Executive Order[2] may be excused. But what if your contract doesn’t contain this or similar language? Fear not, you may still seek relief under the legal doctrines of “frustration of purpose” and “commercial impracticability and impossibility.” Similar to a force majeure provision, under these doctrines, nonperformance and delayed performance may be excused when such performance, as agreed upon by the parties, has been made impracticable by the occurrence of an event not considered or foreseen when the parties entered their contract.

Generally and cautiously speaking, if the performing party (or that part of the performing party under the contract[3]) has been deemed “essential,” that party will be obligated to perform to some extent. Without making this assumption, however, we would recommend that you first contact our team for a more thorough analysis. Determining the contractual obligations of a party during this time of uncertainty will involve a detailed examination of the contract and the parties involved. Our team is prepared to make this detailed examination and, if necessary, discuss with you further the insurance options you may have moving forward. If you would like more information or would like to discuss your contract, please contact a member of our team at 716-636-7600.

[1] Suggested precautions can be found at  https://www.cdc.gov/coronavirus/2019-ncov/prepare/prevention.html and https://coronavirus.health.ny.gov/protect-yourself-and-your-family-coronavirus-covid-19.

[2] All New York Executive Orders can be found at https://www.governor.ny.gov/executiveorders, with a list of “essential” businesses found at https://esd.ny.gov/guidance-executive-order-2026.

[3] Notably, a business may have only parts or certain aspects deemed “essential.”

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 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.

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