I Want Out! How to Try to Get Out of Contracts Following Covid-19
Failing to perform under the terms of a contract could result in a breach of contract lawsuit. If the court agrees that you breached the contract, you could face a variety of penalties, including substantial financial damages. However, is COVID-19 a valid reason to cancel a contract? It depends on the terms of the contract.
How Does COVID-19 Impact Your Contracts?
The coronavirus has impacted the personal lives of almost every American. However, COVID-19 has also had a substantial impact on companies and business owners. From mandatory shutdowns to a decrease in consumer spending, many businesses are struggling to survive.
These struggles can lead to difficulties in performing the terms under one or more contracts. Companies may have difficultly performing contract terms because of interruptions in the supply chain or changes in the workforce. Shipping and receiving may have changed. Whatever the reason may be, many business owners are forced to face the eventuality of failing to perform as agreed with certain vendors, customers, or clients.
Basic contract law governs breach of contract allegations. Nonperformance of any of the terms of a contract can result in damages to the non-breaching party. However, there are some valid reasons for breaching a contract.
Here are two potential legal reasons for failing to perform the terms of a contract during the COVID-19 pandemic.
Force Majeure Clauses in Contracts
Force majeure or “act of God” clauses in contracts acknowledge that there could be events or circumstances that are not within the control of the parties, that might prevent a party from performing. For a force majeure defense to work, several factors must be in place, such as:
- The event could not have been foreseen at the time the contract was signed. Therefore, a force majeure defense may not be valid for contracts signed after the outbreak of COVID-19.
- The effects of the event could not be avoided by the use of due diligence or reasonable efforts.
- The specific wording of the contract might prevent or make a force majeure defense more difficult or impossible.
- The extent COVID-19 has prevented you from performing the terms of the contract.
A careful review of the contract and the effect of COVID-19 on your business is required to determine whether force majeure is a valid legal reason for breaching or terminating the contract.
Frustration as a Defense to Breach of Contract
If the contract does not contact an “act of God” clause or the clause does not apply in your situation, “frustration of purpose” may be a valid defense for breach of contract.
Frustration of purpose occurs when an event occurs that has a fundamental impact on the contract that prevents the performance of the terms of the contract. The contract is automatically terminated because the parties cannot reasonably perform the terms because of the event’s impact on the parties.
As with a force majeure defense, you must prove that you could not have reasonably foreseen the event.
Contact a Coral Springs Business Law Attorney for More Information
Each contract and situation is unique. The best defense to a breach of contract claim is to take proactive steps to prevent a dispute. Our Florida business law attorney can review the contract and advise you of your legal rights, obligations, and options for terminating or renegotiating the contract. Ignoring the matter is not advisable.
Call 954-324-3651 now or contact us online to schedule a consultation with a business lawyer. Get in front of the problem to avoid costly litigation and time-consuming disputes by working with an experienced business law attorney now.