In this age of non-stop news coverage, we continue to be bombarded with news of how the COVID-19 pandemic is affecting our world. Most would likely agree that the pandemic was unforeseeable and that it was out of anyone’s control. But many may now wonder whether, and to what extent, this pandemic will excuse contractual obligations under the theory of force majeure.
The answer, of course, is that it depends. The answer will vary based on multiple factors, including the nature of the contractual obligation, the specific agreement language, legal jurisdiction, and the specific intervening event claimed to be the force majeure event. For additional thoughts about how businesses might want to think about the specific language of a force majeure clause in a contract, see here.
From a policy perspective, parties should not be held to obligations that are inadvisable, commercially impracticable, illegal, or impossible. Therefore, even if contracts do not include a specific force majeure clause, contracting parties may be able to excuse their performance when an unanticipated, supervening event fundamentally alters the nature of the agreement under one of two so-called “gap-filler doctrines”—(i) impracticability or (ii) frustration of purpose. For example, a tornado is likely a valid reason for a shipper to be excused from delivering goods on time.
There are also statutory legal principles and requirements that dictate the consideration of the impacts of unexpected events on the obligations of parties to a contract. For example, in the context of the sale of goods, Section 2-615(a) of the Uniform Commercial Code (UCC) excuses a seller from timely delivery or for non-delivery of goods where its performance has become impracticable either (i) by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or (ii) by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
Consequently, even when a contract does not contain a force majeure clause, performing parties should still consider the impact of COVID-19 on their ability to perform their obligations under the contract.