Tag: act of god

Get out of a contract because of coronavirus

Signed contract
You signed in good faith, but . . .

If your business being shut-down isn’t bad enough, you are being sued because you didn’t fulfill a contract! Is there any way you can get out of a contract by blaming the virus?

I’ve been reading and hearing about the problems businesses are having because of the COVID-19 pandemic. (Naturally, I thought first about business insurance. We reviewed the major types in our Emergency Preparedness for Small Business Book. But this article isn’t about insurance!)

As I read specifically about contracts, though, an expression kept coming up: “Act of God.” I thought I understood what that meant, until I started seeing references in many of the same articles to another term, “Force Majeure.” That expression was only vaguely familiar to me so I did some research, and here’s what I discovered.

I’m sharing what I’ve found here because if you are in business, you need to know both these terms right now.

You may need a way to get out of a contract you can’t fulfill.

A contract seems so simple. You make a promise in exchange for money. By law and common sense, even if the job turns out to be a lot harder than you thought, that contract is enforceable.

But what if something unanticipated and extraordinary makes it not just hard, but impossible to fulfill your promise? Something like COVID-19?

How can you get out of a contract?

It all depends on how your contract was written. (Any surprise there?)

Many contracts do contain a particular clause that may make it possible for you to wiggle out from under, or at least to delay fulfilling on your promise. This is the Force Majeure clause.

The Force Majeure clause is the key.

Force Majeure translates roughly to “greater force” or “superior force” and refers to natural and unavoidable catastrophes that are so great that they keep participants from fulfilling their obligations – and thus make it possible for them to escape from the contract.

Sometimes the Force Majeure clause is called the “Act of God” clause, but the two terms are not synonymous.

Force Majeure is the broader term dealing with the event that interrupts the normal course of business. Act of God is a subset of Force Majeure, and usually refers more narrowly to natural disasters that are unexpected and couldn’t be avoided or prevented.

Before you assume your Force Majeure clause allows you to get out without penalty, however . . .

Review the wording of your contract very carefully, and contact your attorney right away. Here are some of the things to watch out for (by no means a complete list!)

  • Does your contract even have a Force Majeure clause?
  • If so, how is Force Majeure defined? Is it restricted to events due solely to natural causes (hurricanes, tornadoes, etc.) or does it include human events such as acts of war, strikes, pandemics, terrorism, etc.?
  • Which of these events could release you from liability? Which events do not allow you to get out?
  • Are there any time requirements – for example, do you have to declare by a certain date or time that you intend to use the Force Majeure clause to get out of the contract?
  • Do you have to prove that you have made efforts to fulfill on the contract? What is needed for that proof?

Of course, there’s more to be considered . . .

The more I dug into Force Majeure, the more exceptions and or permutations I found. I found references to contracts being broken or delayed because of fraud, impossibility of performance, misrepresentation, frustration of purpose, and because they were against public policy.

These words may seem familiar or understandable, but they all have years of law behind them (and laws from other countries) so they don’t necessarily mean what you might think at first read.

You will need an attorney to help you sort your way through this! Your attorney is probably getting lots of practice in coping with business contracts as you read this, so you better set up an appointment now!!

Your Emergency Plan Guide team

P.S. Now I have many business books in my own library, and several are on the basics of business law. If you are looking for more on contracts or how to get out of a contract, I’d recommend this one first. Unlike most books on the topic, it is written for people signing contracts, not drafting them! (Click on the image to go to Amazon – where we are Associates — to check prices.)

And if you need something a bit more rigorous, but still readable, check out this one from the Dummies series. I have always found them reliable.

One of the reasons I always have legal resources at the ready is because the more you know before you go in to meet with the attorney, the less you’ll have to pay for time getting educated . . .!

April – Month of Action!