Breach of Contract: Covid-19 and the Effect of a Force Majeure Clause

We are experiencing an unprecedented pandemic known as Covid-19. There are many unanswered questions as to how to handle a breach of contract during this time.  For instance, a vendor in Nashua could contract with an individual to throw a party pre-Covid-19. The vendor could cancel the party stating it is due to the Governor’s Covid-19 Orders after the individual has paid for the event. Perhaps the vendor wants to go forward, but the individual can no longer have guests due to travel restrictions and wants to cancel the party, but the vendor refuses to return the deposit. There are many scenarios that have become significant problems for people over the last few months.

                Contracts have not been typically designed to account for a pandemic (although this may change). Some are asking if a “Force Majeure” clause or “Act of God” provision can be used to determine the parties’ rights and whether a party is in breach of contract for not performing in response to Covid-19. Force majeure is a French term meaning “superior force”. A force majeure clause is a provision in a contract that provides for specific events such as Acts of God, power outages, natural disasters, terrorist events, strikes, and other catch-alls for any event that is outside of the control of the parties.

                In order to invoke a force majeure clause, the event has to be unforeseeable. It is likely that while a pandemic would be considered unforeseeable at this point, it may not be for future contracts. Any contracts being written now may have to take into consideration that this pandemic is here for the foreseeable future. In addition, the event must be the reason for non-performance or delayed performance. In other words, Covid-19 must be the actual cause of the cancelation and not another reason. If the contract can still be performed even if it isn’t as lucrative, that may not be enough.

                However, the biggest obstacle to using a force majeure clause to excuse non-performance of a contract is that courts typically interpret force majeure clauses narrowly. If the contract has a force majeure clause, it will usually follow with a list of specific events that would be considered force majeure, such as a natural disaster or power outage. If the list does not include a pandemic then it may not excuse performance for Covid-19. While the list does not have to be exclusive, courts will usually consider the list in order to interpret what kinds of events trigger the clause. Since this country has not dealt with a pandemic of this kind for one hundred years, it is unlikely, though not impossible, that the contract will contain language that would include a pandemic as part of its force majeure language. On the other hand, some force majeure clauses may be broad enough to include pandemics.

                Another important consideration with force majeure clauses is that if a party wants to cancel its obligations then it is wise to check the contract for any notification requirements. There may be a time limit for notification of cancelation or it may need to be in writing. Breach of the contract may not be excusable if the proper notification is not given prior to the breach.

                Force majeure language may not be the only avenue to excuse non-performance of a contract due to Covid-19. Common law provides for other potential excuses for breach of contract, such as commercial frustration, impracticability and impossibility. However, in order to excuse a breach of contract, certain elements must be met for any doctrine of law.

If you would like to speak with one of our attorneys regarding contract issues due to Covid-19, contact us by clicking here or by calling (603) 883-0797.

Author: Davi M. Peters

This blog is intended for informational use only. The information contained herein should not be construed as offering legal advice or a legal opinion.