What does the Covid-19 pandemic mean for your business?

 In Articles

The sudden cessation of business activity due to social distancing has put small businesses under tremendous financial pressure.  If many or even most small businesses cannot service their payables, are they legally obligated to?

There are a variety of legal doctrines that apply.  Here, we consider the doctrine of “impossibility.”  In Georgia, a party may be excused for breaching a contract if it is “impossible” to perform that contract because of an “act of God.”[1]  An “act of God” means an “accident produced by physical causes which are irresistible or inevitable”[2] and are “so extraordinary that the history of … conditions in the particular locality affords no reasonable warning of them.”[3]

Certainly, a global pandemic would seem to meet these requirements.  Historically, however, Georgia courts have not been disposed to allow parties to avoid their contracts based on this defense.  In 1945, for example, the Georgia Supreme Court held that World War II was not an act of God and did not make performance of a contract impossible.[4]  More recently, the U.S. District Court for the Northern District of Georgia held that the 2008 recession was also not an act of God, reasoning that: “If the Georgia Supreme Court determined that World War II was a foreseeable event that could be anticipated and protected against in a contract, certainly a financial downturn  … can be anticipated and protected against when formulating a contract.”[5]

(We understand that God lost money as a consequence of the Great Recession as well, so it it would be hard to blame him.)

These holdings are consistent with Georgia contract principles. “[T]he fact that one is unable to perform a contract because of his inability to obtain money, whether due to his poverty, a financial panic, or failure of a third party on whom he relies for furnishing the money, will not ordinarily excuse nonperformance, in the absence of a contract provision in that regard.”[6]

Accordingly, like most issues of contract law, the first thing to consult is the contract.  Look to see if your contract has an “act of God” or force majeure clause and consult an attorney.  If it doesn’t, there may be other strategies with which we can help.  We are open and ready to assist.  Email us at email@ichterdavis.com.

[1] O.C.G.A. § 13-4-21.

[2] O.C.G.A. § 1-3-3(3).

[3] Uniroyal, Inc. v. Hood, 588 F.2d 454 (5th Cir. 1979) (applying Georgia law).

[4] Felder v. Oldham, 199 Ga. 820 (1945).

[5] Elavon, Inc. v. Wachovia Bank, N.A., 841 F.Supp.2d 1298 (N.D. Ga. 2011).

[6] Hampton Island, LLC v. HAOP, LLC, 306 Ga. App. 542 (2010) (citation omitted).

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