As you navigate through the current economic downturn and try to make adjustments to your business, the contractual terms of your agreements with suppliers, vendors, and customers become very important. Many contracts contain force majeure clauses which can sometimes be invoked to excuse your performance of a contractual obligation. Even without a force majeure clause, there are other defenses that can be used to justify a failure to perform under a contract. Whether or not these issues apply to your business will depend on the specific facts of your situation.
COVID-19
The current COVID-19 pandemic crisis is only the latest natural disaster to disrupt business and the contracts that underlie our business agreements. Whenever business disruptions occur, parties will often turn to the documents they have executed to see whether they provide any relief that excuses their failure to perform as a result of an unplanned event.
Force Majeure
“Force majeure,” one such form of relief, is a legal term that translates from French as “superior force.” The term, common in modern contracts, doesn’t actually have a recognized meaning under English law, but Black’s Law Dictionary defines it as “an event or effect that can be neither anticipated nor controlled.”
Inclusion of a force majeure clause in a contract attempts to allocate risk between the parties of an unforeseen event affecting the ability of either party to perform. If such an event occurs and the parties have agreed to a force majeure provision, the non-performing party is not in breach of the contract, and the other party cannot collect damages as a result. You should consider engaging a qualified attorney to review the specifics of your situation to determine whether you can claim or dispute the existence of a force majeure under your contract.
Other Defenses
Even without a force majeure clause, parties can claim other defenses for their inability to perform. Under the doctrine of impossibility of performance, a party can claim that unforeseen consequences rendered performance under the contract impossible. Under common law, impossibility cannot be claimed merely because performance will be difficult or excessively expensive. In this case, determining the difference between “impossible” and “inconvenient” can lead to litigation.