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Contracts, Coronavirus, and Force Majeure: How Does COVID-19 Affect Contract Obligations?

When I was a first year law student I learned about contract formation, contractual obligations, and breach of contract. We also learned about a term called Force Majeure. You may have recently seen the term.

Force Majeure is a French term that means something along the lines of “superior or irresistible force”, but it is also a term used in conjunction with contract law. In the context of contract law, force majeure is an uncontrollable event that prevents a party from fulfilling their contractual obligations. Force majeure is commonly thought of as a provision included in the terms and conditions of a contract. But, because “uncontrollable events which prevent a party from fulfilling their contractual obligations” seldom occur, especially on a wide spread basis, force majeure provisions aren’t invoked very often.

I have reviewed many contract provisions meant to excuse a party’s performance under a contract when circumstances beyond their control (such as wars, strikes, government actions, Acts of God, natural disasters) make it so that they can’t perform their obligations, but the events meant to invoke or trigger such contract provisions don’t occur very often. The current COVID-19 outbreak may qualify as such an event, especially in light of the fact that World Health Organization has declared COVID-19 a pandemic and the Governors of Oregon and Washington have issued shelter in place orders and have prohibited many commercial activities. The coronavirus pandemic will cause numerous businesses to not be able to perform their contractual obligations.

A business unable to perform its contractual obligations as a result of COVID-19 should determine if their contract includes a force majeure provision which excuses or delays their performance because of an uncontrollable event, such as the current outbreak. Because of the widespread affect coronavirus has and will have on the ability of a business to fulfill their contractual obligations, force majeure provisions will likely become heavily debated. Professionals across the country have already begun to discuss force majeure provisions and their effect on contract obligations.

Whether or not a force majeure provision excuses or delays a party’s obligation under a contract depends upon the specific language of the provision and the surrounding facts and circumstances. Every situation is different. But, even if a contract does not include a force majeure or similar provision, there may be other legal doctrines that excuse or delay performance, including impossibility or frustration of purpose. This is especially true in light of the recent government stay at home orders and prohibition of many commercial activities. In addition, as a general rule, recognized legal treatises hold that performance prevented by an act of God or other uncontrollable event may be excused.

The outbreak has had an adverse impact on many businesses. It is my hope that parties to a contract will act promptly and honor their implied duty to act in good faith and deal fairly with one another while addressing the adverse affects of the outbreak. If so, it won’t be necessary to argue over whether or not a contract provision, government action, or legal treatise excuses a party from performance under a contract.

If the outbreak has or will affect a party’s ability to fulfill their contract obligations, they should promptly notify the other party to their contract. The sooner the better. We don’t know how long it will take for the situation to improve. Document your communications. Provide details with regard to the impact on your business.

Whether the outbreak causes a business to not be able to provide the goods or services they contracted to provide or delays their ability to do so, or causes them to not be able to pay their bills, rent, or mortgage, if they want their performance to be excused or delayed they should act promptly and be transparent. If concessions or delayed performance are being sought by a party to a contract, they may be asked if they have sought assistance through the government relief programs or insurance coverage. Parties seeking to be excused from performance under a contract should be prepared to provide financial information regarding the impact of the outbreak and a business plan to address the impact.

Because every situation is different, if your business has or will be unable to perform your contractual obligations because of the outbreak, you should consider consulting with an attorney. Samuels Yoelin Kantor is available to assist with the legal issues raised by the COVID-19 outbreak.  If you need legal advice or guidance, please feel free to reach out to us. Even if we’re working remotely, we’ll promptly get back to you.

Van M. White III has more than 20 years of experience as a lawyer in Oregon and Washington. Van has been a partner at Samuels Yoelin Kantor since 2001 and has served on the firm’s management committee since 2010.