Coronavirus has caused worldwide disruption. Weddings, sporting events, festivals, supply deliveries, construction projects and any other type of planned gatherings are being cancelled. In fact, many states have made it illegal to host an event over ten (10) people. News reports even indicate church pastors are being arrested and jailed for such gatherings.
The coronavirus has certainly presented us with an unprecedented situation. The fear of contracting the virus coupled with the mandatory stay-at-home order and non-essential business closings are unique. The impact on business is devastating and likely long-lasting. Many business owners are forced to make tough decisions on how to handle situations involving contracts and inability to perform their obligations thereunder due to the impacts of the coronavirus.
What does force majeure mean and why is it important?
In Louisiana, force majeure is defined as an unforeseeable circumstance that prevents someone from fulfilling a contract. When translated from French, it means a “superior force.” You may have also heard the term referred to as an “Act of God”. Lost in the shuffle of the COVID-19 pandemic, is a critical business issue: Can I terminate a contract due to COVID-19? While it is unlikely that any contract you or your business has entered into specifically references this type of global pandemic, it likely contains a force majeure clause.
Is COVID-19 a reason for terminating a contract?
In Louisiana, contracts form the law between the two parties. Thus, in order to determine whether COVID-19 qualifies as a force majeure event, one must review the language in the underlying contract.
Force majeure events are usually defined in boilerplate terms involving language such as “beyond the reasonable control” of the parties. While some clauses contain exhaustive lists, most force majeure clauses are quite broad.
What if my contract does not contain a force majeure provision?
If the contract does not contain a force majeure provision, Louisiana law provides some insight as to how the parties should resolve their dispute over performance. The Code holds that the occurrence of a fortuitous event can excuse nonperformance or even dissolve a contract. A fortuitous event is one that, at the time the contract was made, could not have been reasonably foreseen. However, a party’s performance is only excused if the fortuitous event has made said performance impossible.
Therefore, whether COVID-19 will excuse contractual performance depends not only on the language in the contract, but the nature of the performance contemplated by the contract. It is also important to follow any and all notice provisions in the contract regarding force majeure and to avoid wrongfully asserting that force majeure applies. A wrongful assertion can lead to evidence of anticipatory breach of contract and can lead to unnecessary legal trouble.
The extent to which COVID-19’s effects on the world are yet unknown. This event is unprecedented in modern times. Legislation will likely be drafted in response to the many lingering issues and problems caused by the effects. One such piece of legislation was introduced on March 19, 2020 when the U.S. Senate introduced a bill to help address the crisis entitled “CARES Act”.
Should you have any questions or you would like to discuss this issue in further detail, please do not hesitate to contact us to schedule a free consultation.