Slate’s Law Blog

Litigation Regarding Force Majeure Provisions

The worldwide pandemic of COVID-19 has impacted many businesses large and small in Santa Fe and across the United States, and the impact will likely continue. In addition to concerns of spreading the virus and obtaining proper healthcare, company owners are also facing complications with their everyday business and contracts. If a party is not properly performing its obligations under a contract or needs to place a contract on hold, disputes can arise quickly that can result in costly liability.

Many smaller businesses have agreements in place to order certain supplies each week or provide services to companies or consumers on a regular basis. If your revenue plummets or you lose employees because of Coronavirus-related closures or social distancing, are you able to place your contract on hold for the time being without facing liability? What if another party falls back on an agreement, resulting in severe losses to your business? What defenses or claims might you have in breach of contract litigation?

Force Majeure Provisions

Many contracts include a clause that addresses when the obligations under the agreement might be canceled. Cancellation provisions can be as generous or strict as the parties negotiated. A force majeure clause is a broad cancellation provision that allows the parties to terminate the contract under circumstances that make fulfilling obligations of the agreement impossible, impracticable, inadvisable, or even illegal. Force majeure clauses often apply to “acts of God,” such as natural disasters. Some companies might attempt to cancel a contract in current times by claiming that this pandemic qualifies under the force majeure clause.

Disputes Over COVID-19

Parties to a contract might disagree whether COVID-19 qualifies as a force majeure event. One party might breach the contract, claiming that they are able to cancel the agreement based on force majeure. The other party, however, might dispute that a pandemic is a qualifying event, and try to hold the party responsible for their obligations or damages. This type of dispute can lead to litigation, and a court will need to interpret the force majeure clause and decide each party’s obligations and rights.

Different states have different approaches to force majeure interpretation. Certain states will not excuse contractual obligations simply because an event occurred. They require the non-performing party to prove they made reasonable efforts to perform and that the event was not foreseeable at the time the contract was signed. In most cases, the judge will rule whether an event qualifies based on the language of the specific contact term in question.

If you need to cancel a contract for reasons related to COVID-19 and the associated impact on the economy, you should understand the full implications of doing so, and your options should the other party bring litigation. If another party cancels performance based on a force majeure claim, you should have a business litigation attorney evaluate your legal rights under the agreement.

Experienced Business Litigation Representation in Santa Fe

If you have a legal dispute regarding a contract or any other type of business-related conflict, do not hesitate to discuss the matter with a Santa Fe business litigation lawyer. Contact Slate Stern law online or by calling 505-814-1517 today.