Day in and day out, businesses across the nation rely on contracts for many different things, including partnerships and employment. Unfortunately, however, many companies have been grappling with how to handle these contracts due to the novel coronavirus or COVID-19, which has effectively disrupted business operations around the world.
In particular, many businesses are wondering how to deal with contract breaches, as suppliers of goods and services are finding themselves unable to fulfill different obligations during this time. Certain contract provisions may be able to temporarily remedy this, including any applicable force majeure clauses, which may or may not be viable during this time.
What is Breach of Contract?
A contract is a legally binding agreement made between two parties. Each party promises to perform a certain duty or pay a certain amount for a specific item or service. Contracts are legally binding so each party has potential legal recourse in the event of a breach.
A breach of contract occurs when the obligations detailed in a contract are not kept, because one party has failed to fulfill its agreement according to the terms of the contract. Breaching can occur when one party fails to deliver goods or services in the designated timeframe, does not meet the terms of the agreement, or fails to perform at all. If one party fails to perform while the other party fulfills its obligations, the performing party is entitled to legal remedies for breach of contract.
However, what if a breach inevitably occurs due to something neither party has control over such as a natural disaster that affects one or both businesses, or the ongoing COVID-19 outbreak? In certain cases, a force majeure clause can be utilized to protect businesses and business owners if a contract will inevitably be breached due to elements outside of any party’s control.
Understanding Force Majeure
Force majeure is a legal term of art that refers to an unforeseeable or unavoidable event beyond the reasonable control of the parties to an agreement that works as an excuse or delay for performance of the obligations under the contract. Force majeure essentially excuses the non-performance of contractual obligations because of events specified within the contractual clause, including floods, fires, earthquakes, wars, terrorist attacks, and government orders, among others. Because no list can be completely exhaustive, major issues have arisen during the current global pandemic.
Force majeure clauses will specifically delineate which scenarios are excusable and when a breach is permitted. If an event is not specified under a force majeure provision and happens, the impacted party may not be excused from its contractual obligations, potentially resulting in a breach of contract. Because of this, if any contract does not reference pandemics, epidemics, or mandated quarantines within its force majeure clause, a party will have an incredibly difficult time claiming it’s excused from contractual obligations due to COVID-19. Ultimately, however, whether or not a failure to perform is excused under a force majeure clause is determined by reading the verbiage of the contract and how the courts interpret said contract.
Houston Commercial Litigation Attorneys
When it comes to COVID-19, business contracts should be carefully reviewed to determine rights and obligations. If a long list of force majeure events is included, it will be incredibly helpful if the wording includes pandemic, epidemic, outbreak, crisis, or governmental action. It’s also important for businesses to look out for the wording in new contracts that require the event of force majeure to be “unforeseeable.”
During these uncertain times, it is important for businesses to know the ins and outs of any and all contracts that could potentially be affected by COVID-19. At Feldman & Feldman, our experienced business dispute attorneys create strategic and effective strategies. If your business is facing a dispute, contact us today for more information on how we can assist you.