Many businesses have now turned to the force majeure clauses present in their contracts—invoking the idea that the COVID-19 pandemic is an unforeseeable “act of God” that has hindered the ability of parties to perform their duties as agreed.

In the May 14, 2020 edition of The Legal Intelligencer Edward T. Kang, managing member of Kang Haggerty wrote “Force Majeure During a Pandemic and Potential Contractual Disputes”

In light of the ongoing COVID-19 pandemic, businesses and individuals alike have struggled with following through on contracts that were agreed upon long before the novel coronavirus was even discovered, let alone foreseen as the cause of a worldwide health crisis. Many have now turned to the force majeure clauses present in their contracts—invoking the idea that the COVID-19 pandemic is an unforeseeable “act of God” that has hindered the ability of parties to perform their duties as agreed. For those who do not have such clauses present in their contracts, can the same concept be invoked in a court of law?

Now, in the wake of COVID-19 and its tremendous impact on businesses, it is important to pull out those databases, and update them with information particular to the current state of operations – yours and your contracting partners.

Notably, you should review your contracts for any force majeure clauses. Force majeure clauses provide that when extreme events beyond the control and fault of the obligor arise and prevent that party from performing under the contract, the impacted party is excused from (further) performance (payment for already performed services/delivered goods typically excepted, however).  Here, you will want to consider whether the COVID-19 outbreak constitutes a force majeure event under your contract and, if it does, whether it should be declared by you with notice to the other party or if you can expect to receive such notice from the (soon to be non-performing) other party.  Determine if an improper declaration has consequences under the contract or applicable law. For example, could the other party claim you repudiated your obligations or breached the contract if you improperly (or prematurely) declare a force majeure event and stop performance?

You will also need to establish if the declaration of a force majeure event triggers any other provision in the contract, such as early termination, liquidated damages, extension of time, or an obligation to mitigate damages.

Outside of the contractual force majeure clause, you should also consider whether the pandemic constitutes or caused a material adverse change that affects performance or, even if one party claims a breach of contract, if defenses such as impossibility of performance may apply.

Maybe most importantly, remember the Golden Rule.  If your company is facing exceptional challenges due to COVID-19 and its fallout and you seek to terminate or modify a contract, remember that other companies are experiencing similar issues.  Direct conversations about what companies are facing, what they are and are not able to perform, and when performance may be forthcoming – with the possibility of contract extensions and modifications – are likely to keep relationships civil and intact…and avoid the costs of litigation.

Jacklyn Fetbroyt is a founding member of Kang Haggerty LLC and is currently a committeeperson of the Voorhees Township Committee. Among other things, Jackie focuses on counseling companies and business owners through all stages of their ventures from conception to dissolution, assisting her business clients in all of their needs for maintenance and growth. On Township Commitee, Jackie strives to be a resource to and ears of the residents in her hometown. 

Mathews is named to the list for his distinguished contributions to the practice area of commercial litigation. Commercial litigation involves any type of dispute that can arise in the business context, including breach of contract cases, SEC and NASD claims, class actions, business torts, civil RICO claims, breach of fiduciary duty allegations, and shareholder issues. Successful commercial litigators, such as Mathews, are able to assess the merits of a dispute and scale either a prosecution or defense that fits the legal and business needs of their clients.

Best Lawyers was founded in 1983 and is published in 70 countries and all 50 states. Its methodology employs a sophisticated, conscientious, rational, and transparent survey process designed to elicit meaningful and substantive evaluations of the quality of legal services. The 24th edition of The Best Lawyers in America highlights the top 5% of practicing attorneys in the United States, based on more than 7.4 million evaluations, recognizing attorneys in 140 practice areas.

In the case, Vizant Technologies, LLC, et al. v. Julie P. Whitechurch, et al., Vizant asserted claims for breach of contract, defamation, and tortious interference with existing and prospective business relationships.

A boutique financial services corporation based in Chadds Ford, PA, Vizant also has offices in cities that include Charlotte, Seattle, Toronto and London. They do business with companies in 20 other countries, with clients that include for-profit and and nonprofit entities, including a Fortune 100 company, Temple University, and the Franklin Institute in Philadelphia.

Vizant was represented by Kang Haggerty attorneys Edward T. Kang, Gregory H. Mathews and Jason E. Powell.

The decision is available here.