Coronavirus May Excuse Contract Performance

Can the Coronavirus pandemic excuse you or your company from performing contract obligations? Could it be used as an excuse for a vendor, customer or client to breach their contract with you? In this unprecedented time, the answer depends on the facts of your situation and should be discussed with your attorney.

Talk to one of our knowledgeable attorneys by calling (619) 696-0520 or by completing the form to the right.

Force Majeure

California law includes the maxim: no one is responsible for that which no one can control. Another name for this defense is “force majeure” or “vis major.” There are two categories of this defense: (1) Operation of Law; and (2) Irresistible, Superhuman Cause (Acts of God).

Operation of Law

There is no liability for breach of contract whose performance has been made impossible by operation of law. A party to a contract is not required to violate the law to avoid liability for breach of that contract.

On March 18, 2020, the Governor of California issued an order that “all individuals living in the State of California to stay home or at their place of residence except as needed to maintain continuity of operations of the federal critical infrastructure sectors.” Other orders called for the closure of bars, nightclubs, restaurants other than take-out, houses of worship, and other gatherings of 10 or more people. The Governor also issued an executive order that authorizes local governments to halt evictions for renters, homeowners, and commercial tenants, slows foreclosures, and protects against utility shutoffs for Californians affected by COVID-19. The foregoing orders all fall under the category of “operation of law.”

This category of defense has the best chance of success if performance has been entirely prevented, in whole or in part. If performance is only delayed the success of this defense becomes more questionable. The defense is weakest and may not suffice if performance is still possible but merely made more unprofitable, more difficult, or more expensive to perform.

Whether the actions of the government would constitute enough interference with the performance of a particular contract depends on the extent and nature of the impairment.

Irresistible, Superhuman Cause

You may have heard this category of defense called “acts of god.” Generally, these are natural disasters like earthquakes, tsunamis, droughts, etc. This may also include pandemics like COVID-19, but generally contracts like insurance policies exclude viruses and pandemics.

Generally, the test for this defense is:

  1. Under the circumstances there is an overwhelming interference with your ability to perform your contractual obligations,
  2. The situation was not foreseeable,
  3. You could not have prevented the situation by using prudence, diligence and care, and
  4. You did not create the situation by your own voluntary act.

The COVID-19 virus could be considered an irresistible, superhuman cause of failure to perform. This combined with the actions taken by the government of shutting down large segments of commerce and human interaction may satisfy both categories of this defense.

We strongly urge you to speak with one of our knowledgeable attorneys related to contract performance. The defense outlined above is extremely fact intensive and may change depending on your particular circumstances. Please call us at (619) 696-0520 to discuss.