Does COVID-19 Affect the Enforceability of Contracts?
COVID-19, or the coronavirus, has upended the lives of almost everyone in the world. Travel to and from the United States is either prohibited (such as with Europe or China) or greatly restricted (only “essential travel” is permitted to Canada and other countries). Restaurants, bars, and even beaches are closed in an attempt to stop the spread of the disease. People are advised to not be in groups of more than 10, to not travel on a plane and, in Florida, are prohibited from visiting nursing homes. Given these extraordinary circumstances, are contracts entered into before these restrictions went into place still enforceable? In some instances, the answer is “no.”
The first question is whether the contract contains a “force majeure” clause, which defines what happens when an extraordinary event occurs which is beyond the control of the parties. If there is such a clause in the agreement, that clause governs. Frequently, however, these clauses contain arcane, contradictory or unclear language. If the contract is silent on “force majeure.” a court looks to the foreseeability of the event. In such a case, the party must establish the causal link between an unforeseeable event (in this case COVID-19) and its inability to perform. A disruption which only impacts the profitability of a contract may not be sufficient to prevent enforcement. The Uniform Commercial Code specifically excuses a seller from timely delivery or for non-delivery of goods where its performance has become impracticable either:
- By the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made.
- By compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
At Trenam Law we have reviewed, advised and worked with clients facing a wide range of contractual obligations affected by COVID-19, including event and travel cancelations, commercial landlord/ tenant agreements, insurance contracts, loan obligations, and contracts for the delivery of goods affected by the disruption of global supply chains. We are happy to assist clients in reviewing any contracts which may or are claimed to be affected by COVID-19.