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What to Do When COVID-19 Infects Your Contractual Duties

March 31, 2020

The impact that COVID-19 is having on commercial transactions is becoming readily apparent. Supply chain parties cannot obtain needed materials or supplies, distribution and shipping channels have been disrupted, and shortages in the workforce have occurred. Many contractual parties are now forced to either look for ways to excuse or delay their performance or, conversely, obtain performance from the other party to the contract. What are the rights and obligations of contracting parties under such circumstances?

The starting point for whether a contracting party can be excused from performance due to COVID-19 is the contract itself. Many (but not all) commercial contracts contain “force majeure” clauses. Under Florida law, a force majeure clause is a contractual provision that excuses performance of contractual obligations – either wholly or for the duration of the force majeure – upon the occurrence of a covered event that is beyond the control of either contracting party. The events covered by such a clause depend upon the specific language of the contract, with some covering a wide range of events and others being more narrowly tailored. Indeed, it is not unusual now for a force majeure provision to expressly include “epidemics” and/or “pandemics” among the list of events encompassed by the clause.

Whether a contracting party can be excused from performance because of coronavirus-related problems involves a factual inquiry that depends in large part on the language the parties have used in their contract. Key questions in determining whether a party’s performance is excusable include:

  • Whether the relevant agreement contains a force majeure clause
  • Whether any force majeure provision includes language that encompasses the coronavirus
  • Whether COVID-19 is actually the reason the party is unable to perform the contract
  • Whether there are any exceptions or exclusions in the contract that would prevent application of the clause

If a contractual force majeure clause exists that might excuse performance, other important issues for a party to consider include:

  • What risks are associated with invoking the force majeure provision?
  • Are there notice and timing requirements that must be satisfied?
  • How does the clause apply to the party’s specific performance obligations?
  • Does the provision permit the party to terminate the agreement or merely delay performance?

If the parties’ agreement lacks a force majeure clause, or such a clause is not triggered by coronavirus-related events, several potential arguments exist under Florida common law that also might permit a party to excuse its contractual performance due to the coronavirus. These theories include, without limitation, impossibility of performance, commercial impracticability, frustration of purpose and an “act of God.” Each of these theories are well-recognized affirmative defenses in Florida and will be explored in more detail in future updates.

In sum, a variety of contractual and common law doctrines potentially bear on the ability of a contractual party to excuse its performance based on events related to the expanding COVID-19 outbreak.

Phelps’ lawyers possess extensive experience analyzing and litigating contractual force majeure clauses, as well as the common law theories typically invoked to avoid contractual performance. We are here to help you with these and any other issues that might arise in your business associated with the unprecedented coronavirus and ongoing efforts to contain the same.