Business contract breaches are on the rise during the COVID-19 pandemic and our firm is seeing a rise in contract disputes leading to business litigation. Unfortunately, as the coronavirus continues to disrupt business, more and more companies and individuals will struggle to perform their contractual obligations. The applicability of force majeure clauses—and whether or not COVID-19 will excuse parties from their contractual obligations—is becoming a critical legal issue. Whether or not coronavirus related contract breaches will fall under force majeure depends on the specific language of the business contract as well as applicable law. Leases, vendor and supply agreements, business contracts, promissory notes, and various other individual and commercial contractual agreements could be agreements under which performance is considered impractical or impossible based on force majeure.
What is Force Majeure?
“Force Majeure” translates from French as “superior force,” and refers to a contractual provision excusing one or both parties from their contractual obligations due to circumstances beyond their control, which make performing under the terms of the contract impractical or impossible. Natural disasters and war are such circumstances. One might also think of the phrase “act of God.” Force majeure clauses are related to the doctrines of impossibility, impracticability, and frustration of purposes. Force majeure clauses differ depending on the contract, but often have several key features. Force majeure occurrences can include the following, depending on the applicable law and contractual provisions, among other facts and circumstances:
Acts of God, including but not limited to foods, tornados, hurricanes, fires and earthquakes;
War and terrorism;
Labor-related strikes and disputes;
Changes of law and / or regulations caused by acts of governmental authorities.
For example, in Illinois, standard force majeure clauses might excuse parties from their contractual obligations due to acts of God, tornados, earthquakes (and other natural disasters), epidemics, terrorism, government acts, lockouts, as well as other events that are beyond the control of the parties to the contract. The purpose of the force majeure clause is to limit the effects of such events. Liability will typically be precluded if the force majeure occurrence is the sole and proximate cause of the breach. Clauses typically require that contractual performance be impossible in light of the event, not simply more burdensome.
Does Force Majeure Apply?
Of course, in determining whether or not a force majeure clause can be invoked, the parties and their attorneys must consider all of the relevant facts and circumstances. The specific language within the “four corners” of the contract is extremely important, as most force majeure clauses are interpreted narrowly, which is so that the clauses serve their purpose to limit damages where the reasonable expectations of the parties have been frustrated by circumstances out of their control. The governing law of each specific contract, and oftentimes industry or trade practice, will help to determine how a force majeure clause should be interpreted and whether and to what extent a party will be excused from contractual obligations.
Even if a contract does not include a force majeure clause, performance still could be excused, depending on the occurrence and other circumstances and facts. With no force majeure clause, it could be easier to claim a breach, however, other doctrines, such as frustration, may apply. Similar to force majeure, frustration applies when the contract cannot be performed due to an event not contemplated by the parties and not caused by either party. It is always a good idea, whenever possible, to make sure the contract contains all necessary and realistic provisions, which oftentimes include a force majeure clause.
Coronavirus and Force Majeure
Will the COVID-19 pandemic generally be classified under the term “force majeure” in Illinois and as an excusable event under a contract? To answer that question, the impact of the coronavirus or government measures taken in response require a careful legal analysis of the contract language along with the applicable law. But generally speaking, an epidemic and/or illness, could be considered an unforeseeable act of God, beyond the power of human agency to prevent. See Hoggatt v. Melin, 29 Ill.App.2d 23, 31-32 (3rd Dist. 1961). The timing of the execution of the contract is also important. For example, if the contract was negotiated and executed after the parties had become aware of the COVID-19 pandemic, that could change the outcome and interpretation of a force majeure clause or the application of the doctrines of frustration or impracticability.
Businesses and individuals alike, whenever possible, should take proactive steps to mitigate damages and attempt to ensure continuity of business sufficient to meet contractual obligations. As a result of the COVID-19 pandemic, many parties may find themselves on both sides of the force majeure issue, so it is important to be mindful of that while prosecuting defendants for breaching a contract and of the implications of asserting force majeure defenses.
Where can I get More Information?
For more information on contract disputes and potential legal assistance with business litigation matters, contact our law firm at 312-789-5676. Our corporate attorneys handle breach of contract cases in state and federal courts throughout Illinois, including Cook, DuPage, Kane, McHenry and Will Counties.