With the current situation of the novel coronavirus (COVID-19) not only is personal safety of paramount concern, but also the safety of your business interests. As cities have shutdown from stay at home orders and restrictions on dining, shopping and entertainment continue, individuals and businesses are being directly affected, business owners are being faced with some serious questions about how to continue to run their businesses. What happens to your contracts and agreements? What do you do when you can’t complete your end of the contract? What do you do when someone tells you they can’t perform a duty owing to you? How do you navigate and negotiate in this very unfamiliar territory?
In these situations, people often refer to a Force Majeure provision of a contract, sometimes referred to as the “Act of God” clause, usually refers to natural disasters, terrorism, labor disruptions, etc. The type of event that is unforeseen and unavoidable beyond the control of the parties. In the most common cases, these events would trigger the Force Majeure clause to protect the interests of the parties after their failure to perform. But what if your contract has no Force Majeure clause? Then where can you turn? Maybe to Impossibility of Performance. Impossibility means that performance becomes physically impossible and therefore any further performance would be excused. For instance, if you were hired to paint a house and prior to painting it, the house burned down, then it would be impossible for you to complete your task and your contractual requirement could be excused. You might also be able to excuse contractual failures via Frustration of Purpose. Under the defense of frustration, if the principal purpose of a contract is destroyed, further performance would possibly be excused, absent a contract provision to the contrary. Again you are contracted to paint a house. You purchase the paint needed to paint the house, but the house burns down. You may be able, under the defense of Frustration of Purpose, to be relieved from your contract to buy the paint, since the house no longer exists. Depending on the circumstances, you might find relief under the Commercial Impracticability of the UCC. According to the Uniform Commercial Code (UCC) § 2-61 Excuse by Failure of Presupposed Conditions, allows a seller to delay, cancel or give partial delivery of goods when performance becomes impracticable because of severe shortages of raw material due to a shutdown of a major source of supply. You contract to paint the house. This time the house does not burn down, but the paint manufacturers are no longer able to make any paint. This could excuse your breach.
Whether you must deal with a Force Majeure clause in a contract, or have to interpret the Uniform Commercial Code (UCC) that excuses impracticable performance, you will be looking for precedents in an unprecedented Covid-19 pandemic. Cases and statutes address “acts of God,” hurricanes, war, strikes. There is no Covid-19 precedent.
So how does the Covid-19 affect business obligations covered under a Force Majeure clause or what action do you take under the impracticability rationale under§ 2-61 of the UCC? Possibly in the same manner that any other unforeseen circumstance does. To be prepared,you and your lawyer need to review your contract. Is there a requirement that you must show a causal link between the failure to perform and the incident? Are there requirements mandating your efforts to mitigate your failure to perform? Are you required to give notice of the failure to complete? Each case will be different and you should seek help as you need it to negotiate and renegotiate your way through all agreements that are important to you or your business.
If you believe you might be in breach of an agreement or someone is having difficulty performing, then the lawyers at the Boesch Law Group can help. Please contact us for a free consultation regarding your breach of contract or other Business and Commercial Litigation needs.