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Can the Coronavirus Pandemic Excuse Performance of Contractual Obligations?

COVID-19 has had a devastating impact on the U.S. economy, and no less so in the Chicago area. Social distancing guidelines and other restrictions have caused downscaling and other disruption that may leave businesses unable to perform their contractual obligations in whole or in part. When faced with a claimed breach of contract, it may be possible to raise “force majeure” and other related defenses which excuse performance due to a natural disaster or other events outside a party’s control.

A well-crafted contract will contain a force majeure clause specifying terms of excusable nonperformance. Under Illinois state law, a force majeure is “an event or effect that can be neither anticipated nor controlled. This includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes and wars).”

The force majeure defense to breach of contract has its limitations. Businesses must take reasonable measures to cure the conditions arising from a force majeure. Additionally, the defense cannot be used as a remedy for price fluctuations in order to excuse nonperformance of fixed-price contracts, since market changes are a typical business risk.

Even if your contract does not have a force majeure clause, you may be able to raise one of these other defenses based on the pandemic:

  • Impossibility — This means that an unforeseeable superseding cause has negated a certain condition assumed by the contracting parties that was neither party’s fault. For example, state or local laws prohibiting large crowds due to COVID-19 may justify cancelling a contract to give a concert.
  • Frustration of purpose — This defense may be invoked if contractual performance is technically possible but the contract’s value would be greatly reduced. For example, a merchant may wish to refuse a shipment of goods that cannot be sold at retail due to a drastic falloff in demand due to an unforeseeable cause.
  • Impracticability — This defense typically arises when an unexpected event adds significant expense or difficulty to contractual performance. Examples include crop failures and violent storms that interrupt sources of supply. However, the parties still must carry out as many of the contractual terms as may be reasonable. A party might also have to perform the rest of the contract at a later time.

Needless to say, there is room for disagreement over whether these defenses are sustainable, given the fact that the COVID-19 pandemic’s economic effects represent uncharted territory in this field of law.

Schwartz Law Group, LLC represents business owners in breach of contract disputes and other commercial litigation in Chicago and the surrounding metropolitan area. Call today at 312-436-1442 or contact us online to schedule a consultation at our Chicago office.

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