In the coronavirus pandemic, a number of legal concepts such as force majeure, impossibility of performance, impracticability and frustration of purpose may come in to play in determining whether performance under a contract may be excused or delayed and what remedies may be available.
Many contracts contain force majeure provisions, which potentially limit the liability of a contracting party for nonperformance of contractual obligations upon the occurrence of a force majeure event — an event that is not reasonably foreseeable and beyond the control of the contracting parties (e.g., fires, floods, strikes, material or labor restrictions by any governmental authority, unusual transportation delays).
A successful invocation of a force majeure provision under Florida law depends on the following factors: the event was not reasonably foreseeable and beyond a party’s reasonable control, the event materially affected the ability to perform contractual obligations, and all reasonable steps were taken to provide notice and avoid or mitigate the event or its consequences.
If a force majeure provision is successfully invoked, the invoking party will typically be relieved from performance for the duration affected or performance entirely, and may also be entitled to other relief.
Whether the event was not reasonably foreseeable and beyond a party’s control depends on the specific language of the force majeure provision. In most cases, force majeure provisions contain a specific list of force majeure events.
However, some force majeure provisions do not contain specific lists of events and instead contain generic catch-all language such as national emergencies, acts of God, governmental actions or regulations or actions beyond the control of the parties.
If a force majeure provision specifically lists pandemics, epidemics or disease, COVID-19 would likely fall under one of those categories. Even if such language is not used or if catch-all language is used instead, COVID-19 may still qualify as a force majeure event. Due to the highly fact-specific nature of these cases, provisions must be individually evaluated on a case-by-case basis.
Whether COVID-19 materially affected performance of contractual obligations depends on whether there was a causal link between COVID-19 or its effects and the nonperforming party’s inability to perform. The express language of the force majeure provision will provide the circumstances upon which performance will be excused or delayed, such as a party’s performance will be excused if performance is impeded, hindered,prevented or interfered with.
Most provisions require the nonperforming party to provide the other party or parties with notice of the force majeure event. Some provisions even contain detailed procedures and time limitations for giving notice.
Providing notice, however, may not be enough to evade liability. Even if notice has been provided, a nonperforming party may still be liable for failure to mitigate the harm caused by nonperformance. The extent of the mitigation requirement is fact specific and will depend on the language, applicable state law and relevant facts.
Impossibility of Performance
In the absence of a force majeure provision or as an alternative, a contracting party may be excused from performance of contractual obligations by claiming impossibility of performance. Impossibility of performance arises where the purpose of the contract has become impossible to perform. Notably, impossibility generally does not apply where the relevant event was foreseeable at the time the contract was made because under such circumstances, the event could have been provided for in the contract.
In the absence of a force majeure provision or as an alternative, a contracting party may be excused from performance by claiming impracticability. Impracticability arises upon the occurrence of an event that was unforeseeable and not caused by any fault of the party expected to perform when the non-occurrence of the event was the basic assumption on which the contract was made. If a party’s performance is rendered impracticable, that party’s duty to perform is discharged so long as the language of the contract or the factual circumstances of the case do not indicate otherwise.
Frustration of Purpose
If the relevant contract does not contain a force majeure provision, a contracting party may have a defense under the doctrine of frustration of purpose so long as the party is able to demonstrate that the event or circumstance occurred after the formation of the contract, the event was not caused by any party to the contract, the event was unforeseen by the parties, and it is physically or commercially impossible to fulfill the contract or the obligation to perform has been drastically transformed from the obligation initially undertaken. If these elements are established, the contract will terminate, releasing the parties from any future obligations under the contract.
Other Potential Remedies
Other contractual provisions may provide relief to contracting parties as may changes to the law which suspend or discontinue an obligation under an existing contract. Numerous government orders, laws and rules have been implemented in response to the COVID-19 crisis. Such changes in the law may impact the rights and liabilities of contracting parties as well as businesses in general and may provide additional rights and remedies. Analysis of such matters is a fact-intensive process that requires an overview of all contractual provisions and applicable law.
Peter F. Valori is the managing partner of Damian & Valori|Culmo Trial Attorneys in Miami. Valori focuses his practice on business litigation with a particular emphasis on complex corporate, contract, real estate, employment, professional negligence and trademark litigation. Morgan J. Levine is a law clerk at the firm.