Many businesses are not fulfilling contractual obligations, such as paying bills or supplying goods and services, due to COVID-19. Governmental restrictions and supply chain disruptions may be impacting the ability to perform and/or pay. In certain circumstances, non-performance and/or non-payment may be excusable under a force majeure clause or other legal doctrines.
What is force majeure?
Force majeure is defined as unforeseeable circumstances that prevent fulfillment of a contract, such as natural disasters, government interventions and “acts of God.” A force majeure clause may cover potential inability to fulfill contractual duties due to events outside of the business’s control.
Is COVID-19 considered a force majeure event?
It is not always clear what constitutes force majeure. Agreements and business relationships will need to be reviewed on a case-by-case basis to determine if a force majeure clause exists and if the pandemic could be considered a valid excuse not to perform or pay.
Do other legal doctrines excuse performance due to COVID-19?
The doctrines of frustration of purpose and impossibility of performance, as well as certain provisions of the Uniform Commercial Code, may also excuse temporary or permanent inability to perform contractual obligations.
What steps should I be taking now?
Businesses should think about consulting with an attorney and consider the following:
What happens if you cannot fulfill a contractual obligation or pay?
What should you do if you receive a letter indicating nonpayment or nonperformance regarding a contract or business dealing?
What can you do to improve or preserve your business relationships in these situations?
What can you do to improve or preserve your legal position in these situations?
What evidence should you seek from a contracting party claiming force majeure or another legal doctrine excusing performance?
Can you terminate contracts and refuse payment due to coronavirus?
Are there any notice requirements before taking action?
What are your potential damages or liability exposure?
What happens if a lawsuit needs to be filed?
Kelleher & Buckley, LLC can help you review key contracts and business relationships to address force majeure or other related issues, assist with insurance provider notification and identify any potential for litigation. If your company believes its performance has been or will experience business disruption due to the outbreak, please contact Andrew J. Kelleher or David P. Buckley at (847) 382-9130.