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Helping business navigate Coronavirus-related legal issues Covid-19 Law

COVID-19 and Contractual Commitments

By: Jeff Lieser Posted on: Tuesday, April 21st, 2020

The COVID-19 pandemic has devastated businesses across the country and many owners have been left to wonder if they are legally bound by contracts they signed prior to the outbreak. Unfortunately, there is not simple yes or no answer, but there are circumstances where the contract can be breached without penalties. Every contract is unique and you will need to consult with a business law firm to determine your rights and obligations.

Force Majeure Clause

Force majeure means “superior force” in French and is often referred to as the “Act of God” exception to meeting contractual obligations. In a contract, a force majeure clause recognizes that a significant unforeseeable event could make it impossible for one party to meet its obligations and they should not be penalized under these circumstances.

An enforceable force majeure clause often includes defined, limited circumstances as to when it will be applicable. Most of these clauses include natural disasters, such as a flood or hurricane, but some go further to encompass war or civil unrest, shortages of power or epidemics, pandemics and mandated quarantines. Even if a force majeure clause does not specifically include pandemics, such as COVID-19, that does not mean you cannot seek to use it to excuse your obligations under a contract. For this reason, you need to speak with a business attorney to review the contract and your circumstances. A business attorney  will analyze your situation, recommend a legal course of action, and guide you through the process.

Early Termination/Termination of Convenience

If an agreement does not have an enforceable force majeure clause, other terms may provide protection against inability to perform or unexpected cancellations. Some contracts contain a clause that stipulates an option for early termination or termination for convenience. When this clause exists, it often includes specific notice provisions and other express termination language so it is important to closely follow these requirements.

Impracticality and Frustration of Purpose

In addition to the terms of a contract, Florida courts recognize several legal principles that excuse contract performance, including-the impossibility of performance and frustration of purpose or impracticality. Impossibility of performance addresses situations where the purpose for which the contract was created has become impossible to perform for one of the parties. This legal principle only applies to unforeseeable risks that could not have been the subject of an express provision of the contract.

Frustration of purpose occurs when the value of performance of the contract has been frustrated or destroyed – example, a restaurant that regularly purchases produce from a farmer pursuant to a contract, but cannot meet its minimum monthly purchasing obligation because it was forced to close or limit service under Florida’s COVID-19 response regulations.

Seek Legal Counsel

Business owners should not assume that a contract will automatically be voided due to COVID-19. It is important to consult with a business attorney to review your contact and understand your options and obligations.