Law Bulletin | May 11, 2020

Has COVID-19 Made Your Contract Unenforceable?

Contracts and written agreements between people or entities are a common part of everyday life.  What happens when an unforeseeable event, commonly referred to as “force majeure” or “an act of God” occurs and makes it either difficult or impossible for you to do what you agreed to do?  Or, what do you do if the party you have a contract with comes to you asking to be relieved from their contractual obligations? This can play out in many different scenarios, including contracts involving goods in the supply chain, or leases where a tenant whose business has closed due to Shelter-in Place (“SIP”) orders has asked to be relieved of paying rent.

As we approach the eighth week since California first issued its SIP Order, we are seeing more and more cases where a party is arguing that COVID-19 and the related SIP order constitutes a “force majeure” event, which should relieve them from their contractual obligations.

Generally, courts have viewed triggering events that qualify as a force majeure event narrowly, and whether or not a force majeure defense will be successful typically boils down to the express language in the contract.  Some contracts include a force majeure clause, and others do not.  Even if a contract does include a force majeure clause, not all clauses are created equal and the vast majority fail to list a pandemic, like COVID-19, as a force majeure event.  The more specific the force majeure clause, the stronger the force majeure defense.  If the force majeure clause does not list a pandemic as a triggering event, it is unlikely that a court would find that COVID-19 relieves a party of their contractual obligations under a force majeure defense theory.

Even if the contract contains a force majeure clause that expressly lists a pandemic like COVID-10, as a triggering event, that party must still be able to show that COVID-19 has made their ability to perform their obligations under a contract truly impossible or impracticable.  It is not enough to argue that COVID-19 made it more difficult or costly to perform one’s contractual obligations.

Ultimately, whether a force majeure defense is viable depends on the express language of the contract, and whether COVID-19 has caused it to be impossible or impracticable for a party to perform their contractual obligations.  If you find yourself in a dispute regarding whether or not COVID-19 excuses performance under a contract, contact Pamela Stevens or another SMT attorney through our website at or at (707) 524-1900. We are here to help.

Pamela Stevens

Spaulding McCullough & Tansil LLP