HOW COVID-19 MAY AFFECT YOUR CONTRACT.
Updated: May 2
As SARS-CoV-2, the novel coronavirus, has spread throughout the world, its impacts have been felt by more than those infected. As the curve is hopefully flattening, many people are starting to look to the next phase of their lives to determine how to move forward. With governments of all shapes and sizes implementing orders of varying legality, morality, and effectiveness, millions of Americans are pivoting back to their businesses, often to face complete ruin if they are obligated to perform on their pre-COVID-19 contracts.
With this new paradigm, the law will indubitably change. I believe that there are going to be many examples from all aspects of our pre-COVID-19 lives that are going to be impacted by the next two years of litigation. The way this unfolds will have wide-ranging implications.
A notable trend I believe will unfold is parties to be charged, that is, those who owe some duty under an agreement, will be raising force majeure clauses in a variety of circumstances or the general Act of God defense, as applicable.
A force majeure clause, generally speaking, is an attempt to mitigate unforeseen risks from acts of God, natural disasters, and, in some circumstances, government’s laws that impact the parties to an agreement. In a general sense, and directly translating the phrase, it is any force superior to the party impacting the party’s ability to perform. Furthermore, the clauses cover events that are not due to the negligent or intentional actions of any party.
The mechanical function of a force majeure clause, in general, is to relieve the affected party of its duty to perform in whole or in part because of the event outside of its control.
Thus far I have only discussed force majeure clauses in a general sense, that is because contracts are like snowflakes - no two contracts are alike! Any contract dispute involving a substantial risk or sum of money should be reviewed by an attorney because there are subtle distinctions in the wording that may affect how the duties, taken as a whole, are impacted by changes in circumstances.
Of course, parties tend to enter into a contract under the belief that it will benefit them in some way. When circumstances change, such as COVID-19, then the subjective appreciation of benefits may change.
As I said, the wording of each contract may be subtly, or significantly, different, however, when there is a force majeure clause and the party obligated to act attempts to raise the force majeure clause as a shield, it may be good and proper. There will likely be, however, people who will attempt to use it as a sword to gain an unfair advantage under the circumstances.
An important first step a plaintiff must take is to force the other party’s hand; the prudent plaintiff should push the defendant to find some other means to perform as much as possible under the circumstances. Just because a force majeure event occurs does not mean the defendant can, for example, take a deposit and not perform, dump undelivered spoiled goods without attempting to find replacements, delay the performance until after the government’s shelter-in-place orders are lifted, and similar attempts to, in good faith, mitigate, or lessen, the harm.
If a party attempts to get the other party to perform as much as possible under the circumstances or offers a middle ground and good faith settlement, or offers rescission including refund of deposits, it may look good for the plaintiff in the Court’s eyes down the road when the defendant attempts to use the force majeure defense.
With the unprecedented effect that the COVID-19 disaster has had on our economy, there may be so much litigation related to defendants claiming the defense of force majeure that the Courts will modify how they apply it. Sometimes when there are massive shifts in the paradigm as we are seeing today, Courts will attempt to find, on public policy grounds, a middle ground so that the results are not too heavily weighted one way when taken in the aggregate. As the next few years of litigation unfolds with thousands or millions of lawsuits related to breached contracts due to COVID-19, we will see what that middle ground will look like.
Until then, push the other side to perform as much as possible and act in good faith to find a middle ground approach. If the other side is acting in bad faith and attempting to use the force majeure argument to gain an unfair advantage, send me a message through my contact form and I will give you a free 30 minute evaluation, over the phone, of your dispute and contract.
I hope you all stay safe and healthy!