Many contracts include a force majeure clause which relieves a party from liability for failure to act in the event an unforeseeable circumstance arises which would prevent a party from fulfilling a contract obligation.
The clause typically lists specific unforeseeable circumstances such as weather, epidemics, strikes, lockdowns, shortage of supplies, acts of god, and governmental prohibition.
Though every case is different, in order to invoke a force majeure clause, the following is required:
- event is stated in the contract
- risk of nonperformance was unforeseeable and cannot be mitigated
- performance is truly impossible not economically difficult or impracticable
If your contract does not include a force majeure clause, both New York and New Jersey have common law defenses to protect a party in the event they cannot fulfill an obligation.
Some defenses which may apply are:
Here a party’s performance is made impracticable without his fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged. The party seeking to be relieved must show that: a) the existence of a specific thing is necessary for the performance of a duty; and (b) its destruction or deterioration makes the performance impracticable
The performance is literally impossible due to the occurrence of the unforeseen event- not that a party cannot/ does not wish to act.
Frustration of Purpose
If the party’s performance is substantially frustrated without his fault by the occurrence of an event. Substantial meaning that the frustration must be so severe that “the obligor’s performance can still be carried out, but the supervening event fundamentally has changed the nature of the parties’ overall bargain.”
Rather than relying on the contract language or common law, we recommend the parties try to actively reach an written agreement to memorialize that performance is impossible due to the effects of COVID-19 and the reasonable mechanisms they will take to move forward once performance is possible. Actions, particularly communication matters, shows good faith, and avoid the acrimony that comes from lack of communication.