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Force Majeure and the COVID-19/Coronavirus Pandemic

force majeure provision breaking contract

Force majeure is defined as unforeseeable circumstances that prevent someone from fulfilling a contractual obligation. Often, contracts contain a force majeure provision and list potential circumstances, such as acts of God, war, terrorism, etc., that permit a party to terminate a particular agreement. Ultimately, when there is a dispute, the courts will resolve the issue as to whether something is, indeed, a forgivable, unforeseen circumstance that warrants the dissolution of a contract without penalty. If you are in the midst of a contract dispute, the contract dispute lawyers at Rosenbaum & Taylor, P.C. have 20+ years of experience helping clients deal obtain positive resolutions to their legal issues. Contact our firm today to speak with one of our business litigation attorneys.

Contractual Obligations in Contract Law

So, what about contractual obligations during the COVID-19/Coronavirus global pandemic? How are force majeure provisions interpreted in light of the pandemic? The short answer is, we do not yet know for sure.

Recently, one Judge in the United States District Court of the Southern District of New York held that, based on the COVID-19/Coronavirus pandemic, a party could invoke the force majeure provision in a contract in order to terminate the agreement. In the case of JN Contemporary Art, LLC v. Phillips Auctioneers, LLC, an auctioneer contracted to sell two paintings by a certain date. Although one painting sold immediately, the second painting was due to be sold at auction in May 2020. Of course, the pandemic interfered and the auctioneer unilaterally attempted to terminate the agreement, citing the force majeure provision of the written agreement with the seller. A lawsuit soon followed.

The contract contained the following language:

In the event that the auction is postponed for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood, general strike, war, armed conflict, terrorist attack or nuclear or chemical contamination, we may terminate this Agreement with immediate effect.

In determining whether COVID-19/coronavirus could be classified as a “natural disaster,” the Judge in the Southern District looked to several sources, including, Black’s Law Dictionary, case law and government orders. Black’s Law Dictionary defines “natural” as “[b]rought about by nature as opposed to artificial means,” and “disaster” as “[a] calamity; a catastrophic emergency.” The Judge wrote that neither the Second Circuit Court of Appeals nor the New York Court of Appeals (both of which are appellate courts) have addressed whether the global COVID-19/Coronavirus pandemic should be classified as a “natural disaster.” The Judge determined that the COVID-19/Coronavirus pandemic should be considered a natural disaster because it is a worldwide health crisis that has taken thousands of lives and upended the world’s economy. Therefore, the Judge held that the defendant’s performance was excused and the plaintiff’s motion to dismiss should be denied.

Judge’s Decision

The Judge in the District Court found that the COVID-19 pandemic is, in fact, a natural disaster that excused the fulfillment of the contract by the auctioneer. The Court not only excused the alleged breach, it dismissed the lawsuit outright. But, and this is a huge “but,” the decision of the District Court is not binding on any other judge and, therefore, does not necessarily indicate how another judge in another court might rule on the issue.

Since the language in force majeure clauses typically includes “natural disasters” and may not list pandemics separately, the Judge’s decision in JN Contemporary Art, LLC potentially makes it easier for parties to obtain relief under force majeure provisions in contracts that were not completed or fulfilled due to the COVID-19 pandemic and related government orders.

Of great significance is that the District Court did not apply New York State law in its decision. In fact, there is no legal precedent in New York for the holding of the District Court. Recognizing the lack of New York precedent, the District Court cited two Pennsylvania cases in support of its holding. The two Pennsylvania cases were decided by the Pennsylvania Supreme Court, so that is clearly the law in that State. In fact, the Pennsylvania Supreme Court stated that it had “no hesitation in concluding that the ongoing COVID-19 pandemic constitutes a natural disaster.” In New York, however, we are still waiting for an appellate court to rule on the issue to see how this will ultimately play out. In the meantime, the decision in JN Contemporary Art, LLC v Phillips Auctioneers, LLC is all we have to go on.

Contact Rosenbaum Taylor for Help With Any New York Contract Disputes

If you or your business are facing the prospect of legal action after being unable to fulfill contractual obligations due to the COVID-19 pandemic, don’t think that you are deemed to suffer a loss in court. Our business litigation attorneys are well versed in contract law and contract disputes and have successfully helped many clients reach favorable results in contractual disputes. Contact Rosenbaum & Taylor, P.C. today to schedule a consultation with one of our attorneys and make sure that your business is not punished for circumstances outside of your control.

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