COVID-19 has disrupted the world in unprecedented ways, and contract law is not exempt from its effects. As businesses face challenges in fulfilling their contractual obligations due to the pandemic, it is important to understand the legal implications of COVID-19 on valid contracts.
Force Majeure Clauses
One way that COVID-19 can affect contracts is through force majeure clauses. These clauses allow parties to be excused from performance, or to delay performance, when unforeseen events occur that are beyond their control. Typically, force majeure events include natural disasters, acts of terrorism, and war. Some force majeure clauses explicitly include pandemics or epidemics, while others may be interpreted more broadly to cover events related to COVID-19.
Whether a force majeure clause applies to COVID-19 will depend on the specific language of the clause and the surrounding circumstances. For example, a force majeure clause that includes “government action” may apply if a government order prevents a party from fulfilling its obligations due to COVID-19. However, a force majeure clause that requires the event to be unforeseeable may not apply if the pandemic was already widespread at the time the contract was formed.
Another way that COVID-19 can affect contracts is through the doctrine of impossibility. This doctrine can excuse performance when an unforeseen event makes performance objectively impossible. For example, a seller may be excused from delivering goods if a natural disaster destroys the goods before delivery. The application of the doctrine will depend on the specific circumstances of each case.
Frustration of Purpose
Finally, COVID-19 may also lead to frustration of purpose. This occurs when an unforeseen event significantly changes the underlying purpose of the contract, making it virtually impossible to achieve that purpose. For example, a contract for a conference may be frustrated if a government order prohibits large gatherings due to the pandemic. This doctrine can excuse performance or allow for the termination of the contract.
In conclusion, COVID-19 has significant legal implications for valid contracts. Parties should carefully review their contracts and seek legal advice to understand how COVID-19 affects their specific situation. Whether through force majeure clauses, the doctrine of impossibility, or frustration of purpose, parties may be excused from performance or allowed to terminate a contract due to the pandemic.