On January 19, 2020, a 35-year-old man in Snohomish, Washington became the first confirmed case of the Coronavirus disease (COVID-19) in the United States. Since then, the stock market has plummeted, public officials have recommended ‘social distancing,’ inventories on hand sanitizer and toilet paper have been depleted, and a slew of major events have cancelled. The ripples of the now-official pandemic are felt all throughout society, including in Spokane, Washington, where the locally-loved Gonzaga Bulldogs were expected to compete in the NCAA tournament, which is now canceled.
Admittedly, every business, agency, and person should be responsible during this growing health crisis, but many are unsure of the economic and legal ramifications of their decisions. This article sheds some light on the legal ramifications of the corona virus pandemic, specifically whether the virus allows a party to a contract to terminate the contract or invoke a force majeure clause.
An “act of God” is an unpreventable event caused by forces of nature, such as an earthquake, tornado, or flood. A “force majeure” provides a defense to liability when a party is required to perform, fails to do so, and that failure is caused by a strike, war, or other event within its scope. Hearst Commc’ns, Inc. v. Seattle Times Co., 115 P.3d 262, 268–69 (2005). An act of God is often included as an event excusing performance in a force majeure clause. See, id.
Whether the Coronavirus crisis excuses a party from a duty to perform is a fact-specific question that can only be answered on a case-by-case basis. Some force majeure clauses specifically mention epidemics or quarantine restrictions. See e.g., Gen. Injectables & Vaccines, Inc. v. Gates, 527 F.3d 1375, 1376 (Fed. Cir. 2008); E. Air Lines, Inc. v. McDonnell Douglas Corp., 532 F.2d 957, 963 (5th Cir. 1976). Other clauses may rely on the general definition of a force majeure and so applicability to the particular situation is less clear. Some clauses may be drafted to only excuse one party from performance. See Rembrandt Enterprises, Inc. v. Dahmes Stainless, Inc., C15-4248-LTS, 2017 WL 3929308, at *8 (N.D. Iowa Sept. 7, 2017) (egg producer claimed losses from Avian flu sufficient for frustration defense in argument over liability for purchase of new equipment, the court holding the force majeure only applied to performance by the equipment seller).
If you are concerned about the legal repercussions of breaching a contract due to the pandemic, the first place to look is the language of the contract. Even if your performance may be excused, there may be additional duties to avoid liability, such as providing the other party notice.
Frustration or impracticability are additional defenses for a party’s non-performance if their breach of contract is not covered by a force majeure clause. These defenses are very fact specific and tend to focus on the knowledge and intent of the parties at the time they entered into the contract.
If you or your organization are considering taking action in light of COVID-19 but are unsure of the legal risks, you should consider contacting a qualified attorney with experience in commercial transactions and litigation.
By: Luke O’Bannan