It is well-recognized that ‘acts of God’ may provide legal justification for a contract’s nonperformance. However, defining an act of God for the purposes of contracts has proven to be tricky. There is a fair degree of variability across the states in this country in terms of what constitutes an act of God. The term itself comes from ancient law, which defined it as misfortunes and accidents arising from the inevitable necessity which could not be foreseen or prevented. Modern definitions frequently cite natural disasters such as tornadoes, earthquakes, and floods as acts of God.
Legal Issues Surrounding Acts of God
Many legal precedents have established elements that are not considered acts of God, as well. Included in these are economic downturns. These two ideas are relevant when it comes to determining how COVID-19 is treated for contractual purposes. And between the concept that unforeseen weather phenomena are an act of God and economic downturns are not is a spectrum of circumstances that are a bit harder to determine.
In addition to this, global pandemics are incredibly rare, meaning that there is a lack of existing case law regarding whether pandemics and viral outbreaks are considered acts of God. As it currently stands, a number of factors in a specific case could impact how it is treated. Individuals who were unable to meet contractual obligations due to circumstances related to the coronavirus pandemic may argue that the unknown and unexpected phenomenon impeded their ability to deliver on their contracts. And that since the circumstances were unknown and unpredictable, they should be considered an act of God.
Those who would like contracts enforced or to impose liability could take the position that in many of these cases, it was the economic downturn that impeded the ability to deliver on contractual obligations, not the pandemic itself. Given these different philosophies, it is likely that the courts must consider the specific misfortunes that caused a breach of contract are. They will also have to assess the details in the contract language, the circumstances of nonperformance, and determine what may have been preventable.
Contract Language and Force Majeure
Force majeure clauses are contract provisions that alleviate responsibility from the party’s obligations when certain unforeseen and unavoidable events occur. They often include acts of God but can also be broader in scope. Some astute attorneys may include pandemics and epidemics, worker strikes, acts of war, and other events in their contracts. Contracts that have a clause that includes pandemics or epidemics or one that includes a scenario otherwise caused by COVID-19 and included in the Force Majeure clause would have a strong legal argument for nonperformance of a contract.
Impossibility & Impracticality
For contracts without a force majeure provision, the parties may be able to use the common law doctrine of impossibility of performance as a defense for nonperformance. Some states have statutory language to justify this defense. For instance, the state of Georgia includes a statute that states, “if performance of the terms of a contract become impossible as a result of an act of God, such impossibility shall excuse nonperformance, except where, by proper prudence, such impossibility might have been avoided by the promisor.” This example applies to one state but serves to demonstrate variability in how enforceable the doctrine of impossibility of performance may be in a given area.
Related to the impossibility defense is the impracticality defense. It can be used to justify an unanticipated circumstance that had made carrying out contractual obligations vitally different from what the reasonable expectation was by both parties when they entered into the contract. Not all states recognize impracticality as common law doctrine. The federal Uniform Commercial Code has codified it, though and commercial impracticality in this legislation specifically references acts of God. But to employ this defense of commercial impracticability, the party must demonstrate that the event -whether an act of God or an act taken by a third party – made performance impracticable. Further, the act could not be foreseeable or attributed to the fault of either party.
As you can see, depending upon the unique circumstances surrounding the contract, performance expectations, and the direct effects of COVID will heavily impact whether any court would consider it an act of God. In force majeure clauses, COVID may fall directly under the outlined circumstances. In other contracts, it may be harder to determine.
If your company may engage in commercial litigation related to the pandemic and contracts, it’s a great idea to contact the professionals at Grellas Shah to determine your best path forward in these unprecedented times.