COVID-19 and Contract Obligations

Contracts are of vital importance to the workings of society.  They hold people accountable to their promises and actions.  When a contract has the necessary elements (offer, acceptance, and consideration) as well as being properly signed, the parties will be bound to whatever promises were made in the contract.

Often, contracts have stipulations that address situations in which a party does not meet their contractual obligations.  It is easy to see why such stipulations are placed in contracts.  If you exchange promises with someone else and you fulfill your obligations and the other party does not, you should have recourse against the other party.

However, what if something arises that couldn’t be anticipated by either party to the contract which stops one or both parties from fulfilling their promises under the contract.  A “Force Majeure” clause is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague, or an event described by the legal term act of God prevents one or both parties from fulfilling their obligations under the contract.

Could COVID-19 activate a force majeure clause in a contact?  It depends on a multitude of factors.  A non-exhaustive list is as follows:

  • The wording of the particular force majeure clause;
  • What the obligations were under the contract; and
  • The steps the parties have taken to try to fulfill their obligations.

The force majeure clause must have language broad enough to capture events such as COVID-19.  Further, the obligations under the contract must be such that the effects of COVID-19 would make it impossible for the party to complete their obligations under the contract and the parties must act with the honest intention of actually fulfilling their obligations.  A party cannot simply rely on COVID-19 as an excuse for not performing.

It is always advisable for one to fulfill their contractual obligations but sometimes situations arise in which contract performance is impossible through no fault of their own.  In those situations, a force majeure clause may save a party from recourse by the other.