The COVID-19 pandemic has negatively affected the global supply chain. Orders are going unfilled, which means contracts terms are not being met. Does it constitute a breach-of-contract when a supplier cannot fulfill its obligations?
The answer is: It depends.
Having a signed contract is one thing. Enforcing it is another. Under Florida law, there are instances where courts will excuse a party from contract performance. Two such instances: Where it is impossible to perform; and when it is impractical to perform.
However, courts will generally not excuse a party from performing when a disruptive event is anticipated at the time of contract formation. Stated differently, a court might require a party to perform if a risk — including a pandemic and resulting national emergency — was anticipated by the parties when they entered the contract.
The question before many business owners and their legal counsel: Is COVID-19 a risk that was reasonably anticipated by the parties?
Many written contracts will have a Force Majeure (meaning “Superior Force” ) clause, which excuses a party from performance if there is an unforeseen and uncontrollable event the parties could not have contemplated during the formation of their contract. There is no doubt COVID-19’s impact on one’s business is uncontrollable. The question in a breach-of-contract lawsuit, however, might be: Was it unforeseeable?
The phrase Force Majeure is generally used in contracts as synonymous with an “Act of God”. Contract performance prevented by hurricanes, floods and tornadoes would fall easily into this category. But what of COVID-19? Was this terrible event really unforeseeable?
Although COVID-19 feels like a sucker punch to our economy, futurists have warned of the risks of potential epidemics and pandemics (just like COVID-19) for years. Bill Gates gave a TED Talk on the subject in 2015, for example. Since 2000, the world has seen outbreaks of SARS, Swine Flu, Avian Flu, MERS etc. A reasonable person could argue parties should have addressed future epidemics and pandemics in their contract terms, given the notice we’ve been given by experts about our susceptibility to such events.
The point: Do not assume the effects of COVID-19 will absolve your company from contractual liability, even if performance is impossible or impracticable. A judge might ask: “If other companies and entrepreneurs specifically addressed the issues of national emergency, epidemic, or pandemic in their contracts….why didn’t you?”
Florida courts will likely evaluate your Force Majeure clause based on its clear, unambiguous language. It’s possible Florida courts will view non-performance related to COVID-19 as unforeseeable and uncontrollable events, freeing a party from performance. It is equally possible they will not. Therefore, the best approach going forward is to ensure your contract languages addresses epidemics and pandemics in clear, unambiguous terms.