Canceling a Business Contract During COVID-19

What if my Cancellation Clause Didn’t Include the Word “Pandemic?”

Our last blog on Force Majeure was published just as news of COVID-19 was unfolding and there will still many questions about performing work and staying on schedule.  Soon after, store fronts had closed, contractors were prevented from performing work and the government-initiated lock down was put in place.  The building block for most businesses is the business contract, instantly in jeopardy as the country closed down. The question will remain for some time: can a business or consumer lawfully cancel a services contract during a pandemic?

Courts generally avoid allowing convenient escape hatches to private contracts.  Depending on jurisdiction, courts can be liberal on interpretation and offer room to maneuver if such an event prevented contract execution. Other jurisdictions can be very restrictive even when potential circumstances are enumerated specifically in a contract.

You’ll need to prove that performance was truly impossible – not just that it was no longer economical to perform under the contract.

What if your contract never addressed a calamity at all, or at least didn’t contemplate a global pandemic or government shutdown?

Many times, the typical language found in standard contracts spells out unforeseen circumstances as “acts of God”, “war,” “disaster” or “terrorism” but it will not excuse performance for most contracting parties (varying by state). 

The courts have generally determined that an epidemic is foreseeable enough that if a party wanted protections from one, it could have specified it in the contract. The concept of a pandemic being foreseeable, however, is subjective. If you actually did insert language such as, “disease”, “epidemics” or “quarantines” into your contract – it most certainly will excuse performance.  Going forward, most contracts will and we suggest how your cancelation clause should be written.

Whether or not your contract was executed prior or subsequent to the novel COVID-19 outbreak, it’s worth asking an attorney to review the specific language regardless of whether you are looking to enforce performance or excuse non-performance.  Asking for professional review is important for another reason: the law provides for equitable remedies that may provide a catch-all or excuse neglect. These rather standard defenses to breach of contract are often referred to as, “impossibility” and “economic frustration.” However, as a general rule, in order to apply these defenses, the courts require the “moving party” (the party seeking excuse for non-performance) to prove that performance was truly impossible – not just that it was no longer economical to perform under the contract.

Attorneys will often refer to the Uniform Commercial Code which provides reliable guidance on whether non-performance can result in the successful breach of a contract.

A qualified attorney can review the Uniform Commercial Code (UCC), which provides for additional guidance when in the realm of the sale of goods.  UCC language provides reliable guidance on whether non-performance can result in the successful breach of the contract.

Traditionally, however, the courts have considered reasons like governmental action making performance uneconomical, yet it still does not excuse nonperformance.

This has been the case even when foreign government action has made performance result in “staggering financial losses.” If you or your company will face economic losses if you perform, your best course of action will be to work with your attorney to negotiate with the other party. In many cases, we are seeing more flexibility than usual in contract disputes – so your chances of successful resolution may be higher than you think. 

PK Boston Law is a full-service law firm that offers legal counsel to real estate developers, contractors and businesses in the Greater Boston area.

The above information is designed to provide a helpful overview of a relevant topic. It does not constitute legal advice nor should it be construed as such. Please do not take action based on the above information without seeking formal legal advice. If you would like additional information, please contact Attorney Robert Pellegrini, Jr. at (508) 807-1131 or email us at info@pkboston.com