Business

What Happens If A Contract Is Cancelled Due To COVID?

A contract is a legally-binding document that memorializes the terms of an agreement between two or more parties. Contracts detail everything from what is expected of each party, dates for when obligations will be fulfilled, how the obligations will be satisfied, and the venue for resolving any disputes that may arise.

A contract is a legally-binding document that memorializes the terms of an agreement between two or more parties. Contracts detail everything from what is expected of each party, dates for when obligations will be fulfilled, how the obligations will be satisfied, and the venue for resolving any disputes that may arise.

But what happens if either party is unable to fulfill their contractual obligations for reasons beyond their control?

Over the past year, contracts of all kinds were canceled due to COVID. Events across the country were canceled to limit public gatherings, and businesses in nearly every industry had contracts fall apart due to supply shortages, shipping delays, or being understaffed and unable to perform. Fortunately, most contracts anticipate problems and include clauses to address what happens if the contract cannot be fulfilled.

Here, we take a brief look at two of the most common contract remedies applicable to COVID-related contract cancellations: force majeure and termination clauses.

Enforcing a Force Majeure Clause

A force majeure clause is a common contract remedy for excusing performance when an unexpected, uncontrollable event often called an “act of God,” impedes either party’s ability to fulfill their contractual obligations. Whether COVID-related performance limitations are covered by a force majeure clause depends on the specific language of the contract.

Often, force majeure clauses include a specific list of events that will excuse non-performance or delays. If the force majeure clause is broad and non-specific, COVID is likely covered by the clause; however, even if the clause is specific, the government-imposed travel bans, business closings, quarantine orders, and other events associated with the global pandemic are likely covered within the scope of the force majeure clause.

To enforce this contract remedy, most contracts require written notice of cancellation within a specific time frame from the occurrence of the force majeure event.  An experienced contracts attorney can assist you in identifying how a force majeure clause applies to your circumstances and the actions needed to enforce it.

Using a Termination Clause

Sometimes, contracts will include a termination clause which allows early termination of the agreement without consequence. Like the force majeure clause, a termination clause typically provides specific circumstances that warrant early termination of the contract. However, termination clauses can also cover convenience cancellations, which allow a party to void a contract without having to prove a material breach in contract or other cause.

A termination clause often details how and when a termination clause can be used to cancel a contract. However, because the language in contracts can be confusing and complicated, it is important to consult an attorney for guidance in properly applying the termination clause to end your contract to avoid a penalty for breach or nonperformance.

Evaluation by an Attorney

In this unprecedented time where a global pandemic is impacting nearly every aspect of life and business, you need a skilled contract professional who can carefully interpret and apply the terms of your contract to best protect you when COVID interferes with your contract. Whether you need help canceling a contract or if you want to preserve a contract that another party is trying to cancel, an attorney can review your contract and recommend the best course of action for the most favorable outcome under the circumstances.


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