Coronavirus- Contract Enforceability

With the recent coronavirus crisis, and the devastating economic implications resulting from the “shelter in place” polices imposed by various states, many companies are re-evaluating their contractual obligations. Specifically, companies are trying to determine which contracts need to be terminated or modified, because they are either impossible to perform or subject the contracting parties to unreasonable and unforeseeable costs. Accordingly, force majeure (a phrase not generally used in the ordinary course) has emerged in the daily corporate lexicon to address contract enforceability because of the coronavirus, health risks, and the government forced shut down of businesses. The purpose of this article is to provide information concerning the enforceability of commercial contracts, based upon the legal doctrines of force majeure, frustration of purpose, and impracticability, resulting from restrictions imposed as a result of the coronavirus.

Force Majeure -

The first thing a party should do to determine whether a contract remains enforceable during the coronavirus is to review the subject contract to see if there is a force majeure provision. This type of provision allows a party to suspend or terminate performance of their obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. Courts generally interpret force majeure clauses narrowly and only if the provision specifically includes the event that actually prevents a party from complying with their contractual obligations, such as “pandemic,” “Act of God,” or “government act.”