By: James Godbold – Published in the BizWest Thought Leaders column in June 2020.
We are living in unprecedented times. COVID-19 has impacted almost every aspect of our lives. For businesses, this is an especially difficult time to navigate given various local and state restrictions and regulations, recommended practices, supply chain issues, and general economic uncertainty. The ability of many businesses to perform contractual agreements as originally written has been called into question. Ideally, parties to a contract can renegotiate the terms given the current uncertainty. Where the parties are not able to reach a mutual solution, analysis of the provisions of the contract is necessary.
Many contracts contain a force majeure clause, which generally outlines the situations where a party’s performance under a contract may be modified or excused. It is intended to remove liability for natural and unavoidable circumstances that interrupt the expected course of events and prevent the parties from fulfilling contractual obligations.
In determining whether or not a contract is enforceable based on the COVID-19 crisis, a review of the specific force majeure provision within the contract is necessary. The first issue is to determine whether the language of the provision covers current events. This depends on the exact language of the particular provision as applied to the circumstances the parties are facing. The second step is evaluating what relief is possible under the provision. Is the party entitled to more time, a price adjustment, or can they be released from the contract entirely? The final issue is determining whether there is a specific process that must be followed to invoke the force majeure clause. Finally, if a contract does not contain a force majeure clause, other options may be available to excuse strict performance. A thorough analysis of the contract and the circumstances of the parties is necessary to determine