With the onset of the COVID-19 pandemic and the consequent downturn in our economy, this may be the most oft-asked question that we hear. A similar question asked by business people who are trying to retain the business and contracts that they have is: “Can I still enforce this contract?”
The answer depends upon a few different factors:
First, when did you enter into your contract?
If you entered into your contract before the COVID-19 virus became world news, then one party or the other may have certain defenses to enforcement of the contract. This is because the onset of a pandemic and unprecedented unemployment, for example, were not foreseeable events when you entered into the contract during a booming economy.
If, on the other hand, you entered into your contract after the country of China quarantined a city of more than 11 million people, then these defenses might not be so available. The argument in such cases is likely to be that you knew or should have known – at that point – that performance of your contract may be interrupted or made impossible by the consequences of the virus.
Second, what does your contract say about unforeseen events?
Many contracts contain what is known as a “force majeure” clause, which literally means “greater force”. It refers to a superior or irresistible force or power, such as an act of God (like a hurricane) but is not limited to only these types of events. A typical force majeure clause may say something like: “The Company shall not be liable for any failure in the performance of its obligations under this agreement which may result from strikes, fire, floods, earthquakes or acts of God, war or other contingencies beyond its control.” If your contract contains such a clause, then the next issue is to determine whether a public health situation / pandemic such as COVID-19 qualifies as a condition “beyond one’s control.” Common sense may dictate that it does, but different courts over the years have come to different conclusions regarding this topic. The eras of the SARS virus, and Ebola and Avian Flu epidemics, to name but a few, are previous occasions when courts have had to approach these issues, so some precedent does exist.
Third, is it truly impossible for the contract to be performed?
In some cases, the COVID-19 pandemic might have made the performance of a contract impossible. If, for example, a produce company had a contract to supply a certain quantity of produce to a restaurant by April 30, 2020, and the restaurant was closed for the entire month prior to that date, performance of that contract was impossible.
In other cases, however, the effects of the virus may only make performance impractical, inadvisable or delayed. A buyer of a home may not be able to qualify for a mortgage, for example, while they are unemployed, but once employed again, they may be able to complete a contract to purchase a home.
These examples point out that the answer to the question “Can I get out of this contract?” is not black and white or a simple yes or no answer, but will depend on the specific facts of your situation and the terms of your contract.
No matter what your circumstances are, we possess the experience and skill to navigate a course that is right for you. We are an innovative law firm that prides itself in finding and executing creative solutions to novel problems such as those we face today.
Please call us for a free consultation. Your consultation will be the most effective and beneficial if you have the following materials at your disposal when you call:
1. A copy of the contract at issue; and
2. Any recent email or other correspondence with the other party to the contract.
In addition, if a lawsuit has been filed against you, then you should also have available a copy of all of the papers with which you have been served.