Contract Law: Is the COVID-19 Pandemic an Act of God?
By: George J. Taylor
COVID-19, or the Coronavirus, is having a tremendous effect on our nation’s health and our economy. Breaches of contract will be rife during these unprecedented times, with litigation likely to soon follow if the parties cannot come to a resolution before a lawsuit is filed. As a business litigator, I have experience in both prosecuting and defending breaches of contract, and I foresee that the breaching party will likely seek the protection of a force majeure clause to excuse performance under the contract or rely on common law defenses outside the four corners of the contract like impossibility of performance, impracticability of performance, or frustration of purpose. The foregoing is especially true with our hardest hit industry: hospitality (restaurants, bars, hotels and motels, event planning, transportation, cruise lines, and airlines).
Act of God is a legal term of art that may excuse performance under a contract, and it applies when forces of nature, like floods and tornadoes, are so severe that the effects could not be prevented or avoided by reasonable care or foresight and performance are now impossible. Forces of nature coupled with human intervention will likely destroy the viability of this defense.
A related term is force majeure (French for superior force), which may also excuse the performance of a contractual obligation when the unexpected event prevents one of the parties from keeping a material promise. Unlike an act of God, force majeure includes acts of people, like strikes and wars. Both terms are commonly found in contracts and excuse a party’s performance under certain circumstances. However, COVID-19 is not an act of God in the legal sense because human forces (interaction with others) have caused the worldwide spread of the virus.
COVID-19 may fall squarely into a force majeure clause, which might include certain events beyond any of the party’s control like pandemics, epidemics, and quarantines, but the analysis does not end there. The party invoking force majeure must show that it is impossible to perform its obligations under the contract. For example, a force majeure clause will not protect a party that cannot fund a transaction because COVID-19 gutted his or her stock portfolio because market fluctuations are foreseeable. If the contract is silent on force majeure, common law defenses like impossibility of performance, impracticability of performance, or frustration of purpose may still be available. If you cannot perform under a contract during these unprecedented times, or if the other party has provided notice of an inability to perform, please consult with an attorney who is a business-minded problem-solver to try and reach a resolution before a lawsuit is filed.
George J. Taylor is a Partner in Brinkley Morgan’s Estate and Trust Litigation and Business Litigation practice groups. His Estate and Trust Litigation practice focuses on resolving disputes, including but not limited to will and trust contests based on undue influence, removal of personal representatives and trustees for breach of fiduciary duty, litigation between trust protectors, trustees, and trust beneficiaries. Additionally, Mr. Taylor’s Business Litigation practice focuses on solving legal problems resulting from commercial and business relationships, like breach of contract, fraud, breach of fiduciary duty, conversion (embezzlement), and ownership disputes, including the litigation of those matters in both state and federal courts. He can be reached at 954-522-2200.