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Force Majure and contracts in the age of COVID-19

On Behalf of | Jun 26, 2020 | Business Litigation |

Breaking a contract can be risky. But the coronavirus is making it harder for some businesses to carry out their duties. Because of this, many businesses and their lawyers are looking for ways to break their agreement legally. Many could do so if Force Majure, or Act of God clauses are somewhere within their agreement.

These clauses can get parties out of a contract permanently or temporarily. Companies use Force Majure when supply chain disruptions or natural disasters halt business operations. But the coronavirus and its economic impact pose new difficulties. Some agreements say parties can withdraw from a contract for unforeseeable reasons such as:

  • Natural disasters
  • Wars
  • Government actions

Pandemics and epidemics count as unforeseeable reasons, but they’re not that common. Businesses can use the pandemic to exit a contract by finding any “catch-all” provisions. These provisions are a portion of the contract that covers all possible disasters not explicitly stated in the agreement.

What if a contract doesn’t include Force Majure?

Even if a contract doesn’t have an Act of God clause, California businesses have some leeway. California’s civil code says it excuses failure to perform a contract if duties are prevented through “delayed or superhuman causes.”

Other jurisdictions may also approve contract withdraws if an event occurs that prevents the performance of a transaction.

Exiting contracts can be complicated

The coronavirus pandemic is changing the way America does business. And when companies can’t afford to fulfill the duties in their agreements, they need to find a way out. Luckily, they can do so with the help of a trusted legal partner.