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COVID-19's Impact On Contracts

On March 25th, Governor Evers’ Stay-At-Home order went into effect and ordered several non-essential businesses around the state to close down. This unprecedented event has raised a lot of legal questions for businesses with contractual obligations to landlords, vendors, suppliers, etc.

Many contracts contain what are known as “force majeure” clauses. “Force majeure” (French for “superior force”) is essentially a contract provision that allows parties relief from performing a contractual obligation if events outside of their control prevented that performance. The question several businesses are asking these days is, does COVID-19 implicate such a provision?

Generally, these provisions are invoked when circumstances beyond both parties’ control arise, making performance either physically impossible, commercially impracticable, or statutorily illegal. While some would say that a force majeure clause is nothing more than boilerplate language that parties stick to the end of the contract, these clauses are incredibly important. There are no default contract rules that protect parties from liability due to an event beyond the parties’ control. Without such a clause in a contract, a party will often be at the mercy of the other to forgo their contractual rights to benefit from the contract and not sue for breach or default.

Whether a force majeure clause will apply to a given set of circumstances will ultimately depend on the specific language of the clause itself. Generally, the party that will want to rely on the clause will bear the burden of proving that it applies in court. Historically, courts have interpreted these provisions narrowly. Courts have been hesitant to qualify economic hardship, business downturns, and unanticipated increases in expenses as circumstances that warrant force majeure protection.

Courts look to many factors when determining whether such an event will invoke the provision or not, but, as mentioned, the language in the contract is what will ultimately control. For instance, does the force majeure provision explicitly or implicitly include a pandemic event? Many of these provisions contain phrases like “acts of God.” Historically, courts have considered fires, earthquakes, and floods to be included as such. Courts may or may not find that such a phrase includes “contagion” or “pandemics” like COVID-19.

Additionally, courts will look to whether the event was foreseeable by the contracting parties. If it was, then the event will likely not pass the provision’s requirement. For instance, any contracts entered into after the World Health Organization declared COVID-19 a global pandemic may not qualify for excused performance because business interruption may be foreseeable in the wake of a declared pandemic. Courts also will look to the causal connection between the event and the impediments to performance. If a contract pertains to a large event held in a public setting, and is created before a stay-at-home order is enacted, a party’s obligations may be suspended if those obligations would violate the order. Legal impossibility or severe economic impracticability can provide a party an avenue to relieve itself of its obligation in many cases.

Parties considering invoking its contract’s force majeure provision should make sure to document each and every way an event like COVD-19 has made the contract impossibly or unduly difficult to perform. Determining whether such an event will excuse performance under a contract’s force majeure provision requires a detailed and careful review of the contract’s language and the facts relating to the nonperformance. At Levine Eisberner LLC, our attorneys can guide you through this process and assist you and your business during these uncertain times. Contact us now for a consultation.


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