Coronavirus and Contract Cancellations

Coronavirus and Contract Cancellations

We are already seeing situations where businesses cannot meet their contractual obligations because of the COVID-19 pandemic. One of the things businesses should consider is whether their failure to perform is legally excused.

Written contracts often have provisions that excuse performance in the event of unforeseen, intervening circumstances. Sometimes they may appear as “Force Majeure” clauses or be associated with terms like “Impossibility.” Words and phrases in these provisions may include “governmental action,” “Acts of God,” “disaster,” “emergencies” or similar language. Contract language is important, and businesses should determine whether their contracts might cover a situation like the current pandemic. For example, an official declaration of a state of emergency or a disaster might trigger a contract defense.

Applicable state law, whether your contract is written or oral, may also provide a defense to a claim of breach of contract for impossibility or impracticability. In Virginia for example, a 2018 Supreme Court decision reaffirms the availability of the “impossibility of performance” defense and applies it to a contract dispute.

We are observing that parties in commercial relationships are bending over backwards to accommodate each other, as we are all in this together. Nonetheless, remain aware of contractual rights and obligations, including notices of cancellation that may be required if you are prevented from performing by the virus.

 

Attorneys and/or practice areas related to this topic include:

A list of the firm's COVID-19 legal and informational resources can be located here.


This has been provided as an informational service and does not constitute legal counsel or advice, which can only be rendered in the context of specific factual situations. If a legal issue should arise, please contact an attorney listed or retain the assistance of other competent legal counsel. Case results depend on a variety of factors unique to each case and results do not guarantee or predict a similar result in any future case undertaken.

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