Must you Perform Your Contract During the Pandemic?

Businesses want to know how this halt will affect performance of contracts they have entered into. In other words, does the novel coronavirus constitute a reason relieving parties from their contractual obligations?

he novel coronavirus has swept across the United States. Many have been sickened, and some have died. Colorado has not been spared. There have been several hundred deaths in Colorado from COVID-19. Although human health is our primary concern, there are also economic aspects to the pandemic. The spread of the virus, and Colorado’s stay at home order, have halted many types of commercial activity. Businesses want to know how this halt will affect performance of contracts they have entered into. In other words, does the novel coronavirus constitute a reason relieving parties from their contractual obligation?

What Is Force Majeure?

Many contracts have “Force Majeure” provisions. Translated from the French, force majeure literally means “superior or irresistible force.” The legal doctrine is designed to protect the parties to a contract who cannot perform the contract because of causes outside the control of the parties that the exercise of due care could not avoid. Sometimes the phrase “act of God” is used as a synonym for force majeure. The occurrence of a force majeure normally allows the parties to cease performing the contract if the contract includes one of these provisions. 

Force Majeure in Colorado Law

Colorado statutes provide force majeure provisions to deal with contracts for public works. One provision, for example, addresses transportation contracts. It defines force majeure to mean:

fire, explosion, action of the elements, strike, interruption of transportation, rationing, shortage of labor, equipment, or materials, court action, illegality, unusually severe weather, act of God, act of war, or any other cause that is beyond the control of the party performing work . . . and that could not have been prevented by the party while exercising reasonable diligence.

This provision does not directly address a pandemic, but a court would most likely consider either or both of the phrases “act of God” or “any other cause that is beyond the control of the party performing work” to include the pandemic. 

Contractual Force Majeure Provisions

Force majeure provisions in contracts sometimes specify the occurrence of a disease as an event relieving performance. Others do not. Insurance policies, in fact, often exclude business interruption coverage when the cause is a virus or a bacteria. While there is precedent in court proceedings to consider the outbreak of a disease to be a force majeure whether or not a contractual clause specifically includes it. Whether they apply to the COVID-19 pandemic and the Stay-at-Home orders will be determined by their language. For example, in Maine, a nineteenth century case considered a cholera outbreak to qualify. In 1921, an epidemic of flu in North Dakota constituted a force majeure. Resolution of these issues 

Alternatives to Force Majeure

Even if a contract does not include a force majeure clause or the force majeure clause does not encompass a pandemic to excuse performance of a contract, other contractual doctrines could excuse performance of the contract by a party. In Colorado and under the Restatement (2nd) of Contracts, the main such contractual doctrine is “impossibility of performance.”

“Impossibility of performance” means that a contract can no longer be performed “due to an unforeseen, supervening act for which the promisor is not responsible,” which could include the pandemic. It also includes impracticability of performance which is when performance of the contract is impracticable because of the occurrence of an unanticipated event. Impracticability of performance can include complying with a government order such as the Stay-At-Home orders issued by Governor Polis and other governors around the country.

It is inevitable that the COVID-19 coronavirus will result in commercial litigation over whether a party was required to perform a contract but failed to do so. If the virus has affected performance of a contract that you or your business has signed, by you or the party you contracted with, you should consult with an experienced business litigation.