These times are nearly unprecedented (https://en.wikipedia.org/wiki/Spanish_flu). And, definitely unprecedented with a society as mobile and technology enabled as we are today.
Our society and, especially, businesses are held together by a seamless web of contracts (https://lsolum.typepad.com/legaltheory/2006/10/legal_theory_le.html). The relationships we have for services and products are underpinned by our understanding of a contract (verbal or written). An unprecedented or unexpected event or set of circumstances can throw a wrench into our contracted relationships and expectations. COVID-19 is just such an event and his having just such an impact.
So, what do we do with our contracts now?
In large part, the options available to the parties are going to be dependent on the contract itself. Well written contracts take into account the unexpected and provide flexibility or a procedure to address those events/circumstances. But, not all contracts are well written.
Well Written Contracts
There are two basic areas of contracts that come into play in unexpected situations: (1) Force Majeure and (2) Impossibility.
Force Majeure is a concept that comes to us from the law through French/Latin based on the idea of events and circumstances beyond the control of the parties – sometimes called “Act of God.” Force Majeure clauses often provide for either (or both) parties to cancel the contract with the parties being put back in, substantially, the same position they were in before the agreement; refunds, rescheduling, etc. Many folks are relying on the Force Majeure clause to adjust, renegotiate, or terminate their agreements during this time. A well written contract with a Force Majeure clause is the best situation a party can rely on in COVID-19.
Impossibility is a bit different. Impossibility is a defense to a claim of breach of contract. For example, one party breaches the agreement and the other part sues to enforce the contract. The defending party can assert the defense of Impossibility to get out of the contract, though there may be other consequences (like refunds, etc.). An example of Impossibility may be something like an agreement to purchase an exotic pet, but then the law changes and makes it illegal to sell the exotic pet – the contract is now impossible to perform (at least, legally). And, recall, contracts for illegal purposes are not enforceable.
No Contract or Poorly Written Contracts
If there is no contract or one that doesn’t have appropriate clauses, then we are left with different options. Impossibility is still a viable defense to get out of a contract, but does COVID-19 create an impossible set of circumstances? Maybe or maybe not. It will be highly dependent on the specifics of the situation. For example, an agreement to provide N95 masks to a non-essential or non-healthcare business may be, for now, impossible as all supplies are being diverted to essential and healthcare resources/businesses. On the other hand, an agreement to host a wedding or event is probably not impossible, just untimely. In the wedding example, the host would still be able to host the wedding, just not right now – it would likely need to be rescheduled. Whether a reschedule is an appropriate response or alteration depends, again, on the specific circumstances.
Setting aside the defense of impossibility, the parties have two basic options:
- Settle the matter between themselves – remember, the only ones that have standing to sue to enforce the contract are the parties to the agreement themselves. If the dispute is resolved between the parties, no one else can object to that settlement.
- One party sues the other – the aggrieved party has the courts to fall back on to get satisfaction. The law is there to protect the rights, even contracted rights, of individuals. Legal action is a possibility, and may even be highly advisable, but it is often not a quick or inexpensive route.
So, what should I do if the other side has breached the agreement?
During this time, our advice to clients is to be patient and do your best to work through the issue with the other party. We also recommend “thinking outside the box” to find solutions. For example, a refund may not be acceptable to both sides – but what about a discount? Or additional services for no cost?
Working through the dispute with the other party is your lowest cost and quickest option to resolve the issue. Often, in settlement like this, both parties will suffer – at least to some extent. The aggrieved party may not get the timely services or products they want when they want them. The defending party will probably have to give up some opportunity or suffer additional cost to perform at a later time. Going back to the wedding example, the wedding party is upset because their wedding needs to get rescheduled to later in the year. While the host doesn’t receive the income right now – or if they’ve already been paid – will not be able to offer that future date to someone else (either way, they’re out of some amount of income), especially if they have to discount in order to keep the business/agreement.
If you’re concerned about your agreement, you should consult an attorney to get advice specific to your circumstances and the risks involved.