Over the course of the coronavirus pandemic, all businesses have been forced to adjust how they operate. Given changes in resources, labor, and even the ability to travel, some businesses have been left struggling to fulfill their contractual obligations. Consequently, businesses are left wondering what relief they are entitled to as a result of the pandemic, as well as what contractual obligations they are still responsible to fulfill. Take, for example, a business which rents out a conference center for a convention. If that conference center is no longer open due to COVID-19 at the time when the convention was supposed to take place, can the original business get their money back? Does it have the right to additional damages based on the conference center’s inability to perform? The answer depends on the governing language of the contract.
There are all sorts of questions coming up for businesses engaged in contracts with third parties, including vendors and clients. Businesses struggling to fulfill these obligations may be left wondering if a subsequent inability to perform their obligations means they are in breach of contract.
What about Force Majeure Clauses?
Increasingly, small businesses are wondering if a force majeure in their contract provides protection when contractual obligations are seemingly impossible to fulfill. Generally speaking, a force majeure clause relieves a party, under certain circumstances, from performing a contractual obligation in light of an unexpected event beyond its control. A typical force majeure clause (1) defines or lists the events that excuse performance; (2) specifies the standard that must be established to excuse performance; (3) sets forth additional requirements such as notice and mitigation obligations; and (4) specifies the consequences of a force majeure event, such as termination.
Is COVID-19 considered a Force Majeure event?
While at first glance it may seem the coronavirus pandemic would automatically qualify for application of a force majeure clause, in reality this may not be the case. The specific language of the force majeure clause will determine whether relief is available. Contracts will often specifically state what is classified as a force majeure event. Some common classifications of force majeure events include:
- Acts of God
- Natural disasters
- Government interventions
Even when an event does qualify, it is important to remember that when interpreting and enforcing a force majeure clause, courts analyze whether the reason a business is unable to perform their legal obligations was directly related to the event.
What if the contract has no Force Majeure clause?
Even without a force majeure clause, a party to a contract may still be able to terminate the contract. For qualifying contracts, “doctrine of commercial impracticability” essentially states a party is not in breach of their duty so long as the agreed performance has been made impracticable by the occurrence of a contingency. In addition, common law doctrines such as frustration of purpose and impracticability may provide businesses the ability to be released from their obligation. As there are many requirements for availability of these remedies, it is always best to speak with a contract attorney before making the decision to cancel a business contract.
How then should I reevaluate future business contracts?
The times we are living in are unprecedented and certainly unforeseen. As such, business owners are reevaluating the contracts they typically utilize in order to better prepare for the future. Issues to consider necessarily include force majeure language and whether it will cover pandemics like COVID-19; the specific obligations of each party involved in the contract in the event of force majeure event; and the obligations of the non-performing party to mitigate damage prior to force majeure becoming enforceable.
Making even slight revisions based on what we now know about how businesses are operating can save a great deal of time and money in the future, while helping strengthen and protect business relationships.
Need help making a revision to a contract or need a new one?
If you need help with evaluating and updating a contract due to the current pandemic, we can help. We have helped a number of small businesses facing contractual challenges, and we can provide legal assistance to you and your business too. Contact us today for a consultation to speak with one of our San Antonio contract attorneys.