COVID-19 —A Good Excuse Under Your Business Contract?

In the absence of an applicable governmental order, can COVID-19 be used to excuse performance under your business contract?  If performance is rendered impossible, then the answer is yes.  However, if performance has simply become more difficult, dangerous, or burdensome, then we must look to the plain language of the contract.  Many negotiated contracts contain what is commonly referred to as a ‘force majeure’ clause.  ‘Force majeure’ literally means higher power or superior force.  These clauses typically excuse performance due to “Acts of God” and sometimes other unforeseeable events.

Whether or not COVID-19 is an act of God is a hotly debated point.  Traditionally, extreme weather events and natural phenomena such as tornadoes and hurricanes qualify as acts of God.  However, economic crises (like the one we are arguably experiencing as a result of COVID-19) have generally not been afforded such a designation, but the existence of a national emergency due to a pandemic raises novel issues.

If the ‘force majeure’ clause in your contract does not contain express language including a pandemic as an unforeseeable event, you may have a fight on your hands to utilize such a  clause to excuse that next invoice or rent payment.  It is not safe to assume what the outcome will be in such matters.  Cases involving such issues will be resolved on a case-by-case basis.  The outcomes will be fact intensive and require careful review of the specific contractual language at issue as well as all the relevant facts.  This makes it more important than ever to have the help of an experienced attorney.

Jim Ludwig is an experienced business attorney who can help fill in the gray areas of your business contracts or help negotiate the next one to better protect you.  Call him now for a free consultation.