Pandemic and Contracts

©2020 Roland Brown

Among the many issues the Covid-19 pandemic creates is that some folks are not able to comply with the terms of their contracts. Does the pandemic change your contractual responsibilities? Maybe. (That’s a lawyer-like answer isn’t it? A bit like the lawyer, who, when asked what the sum of $1 million and $3 million was, replied, “what do you want it to be?”!) Well, the truth is that some contractual agreements will be altered by the current situation and others won’t. Some of your contracts likely contain force majeure or act of God clauses. These clauses, usually found near the end of the contract, vary in their wording and therefore vary in their effect under a given set of circumstances. Your starting point in determining where you stand in relation to the contract is to look for such a clause and then read it carefully. Does it refer to “epidemics” or government intervention or similar events? If not, is it otherwise broad enough to excuse performance in the event of such events?

What if your contract does not have a clause sufficient to apply in the current environment? Is all lost? Maybe not. (Another lawyer-like answer!) The legal doctrine of impossibility of performance may excuse performance. This may be particularly true where the government essentially prohibits one from doing that which is necessary to perform the contract.

What should you do if you find that you cannot perform your obligations or that the other party to your contract cannot meet the obligations owed to you? If you have a good relationship with the other party, or if it is a party likely to be dealing with these issues for many of their customers, just discussing it quickly may bring about a mutually acceptable solution. Otherwise, consulting with an attorney knowledgeable in contract law can help you map out a strategy. One practical tip is to determine whether your contract requires some type of timely notice of intent to invoke a force majeure clause. If so, be sure and give the required notice. We are in uncharted waters here and the answers to the questions raised may be different tomorrow than they are today. I suspect many people will find others unusually willing to adjust obligations, but some may be unwilling or unable to be so accommodating.