COVID-19 (Coronavirus) And Contractual Obligations

It is an absolute certainty that Covid-19 has already unexpectedly affected both your personal and professional life.  We are being updated constantly with the cancellation of sporting events or large gatherings, the extensions of Spring Breaks for school districts and colleges, and the reminder that our hospitals and doctors cannot withstand an outbreak that the spread of this virus could cause.  Employers are instructing employees to work from home and cancelling all business travel, all with the hopes of preventing the spread of this virus.  With this uncontrollable change of plans and affect on our economy, many of us are left bound to contractual obligations that we entered into over the next day, week or month that can no longer occur.  Can the arenas, hotels, airlines or service provider hold their clients liable under these contracts.  Can the clients escape these contracts due to this unforeseen circumstance. While there is no definite answer, the first place to look for guidance is your contract.  Typically, the contracts will provide a Force Majeure or Impossibility clause.  A force majeure clause is a provision in a contract that excuses a party from not performing its contractual obligations that becomes impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled. An example looks something like this:

Inability to Perform: If Seller is unable to perform under this Agreement for reasons beyond its control, including but not limited to delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions; or any other causes of any kind whatsoever which are beyond the reasonable control of Seller (“Force Majeure Events”), , Seller may terminate this Agreement by written notice to Purchaser, in which event the Earnest Money and all other payments made by Purchaser to Seller will be returned to Purchaser as Purchaser’s sole and exclusive remedy under this Agreement, and both parties will be discharged from all duties and performance hereunder.   

While these are standard clauses in contracts, they often times differ in language that can have extremely large legal effect as to what is covered and not covered by this clause as well as the requirements to be followed in such an event to cancel the contract.  So, the first place to turn for an answer is obviously this clause in your contract. Next, it is worth consulting counsel as to how to draft your notice of cancellation given the language in your particular clause or if you are the vendor to consult an attorney as to how to respond to such notice.  These details in the clause, the notice of cancellation and the response can make all the difference if legal proceedings result.  The price paid to the attorney could save thousands if not millions as it already has for many of clients both personally and professionally.  In the end, given the closings of gatherings everywhere and the declarations of emergency by States, Counties and Cities, this clause, if present in your contract, and obviously depending on its wording, might allow you to cancel the contract without liability.  At Albin Oldner Law, we have already advised numerous clients on both sides of this equation as to how to handle their scenarios given the language of the clauses in the contracts and would welcome the opportunity to advise you as well.  In the hopes of providing complete information, you might be asking what if this clause is not in my contract.  The answer is to have an attorney review your contract in full for any other clauses or remedies that may apply.  In addition, their common law defenses to contracts such as the impossibility of performance that might apply, but in most instances, in the absence of this force majeure or impossibility clause, you will likely be bound by the contract and the remedies available to the other party for breach, but please, if you take nothing else from this blog, please have your contract reviewed by an attorney.  The cost to have a contract drafted or reviewed by an attorney is miniscule when compared to the cost to litigate the same and would have included these necessary clauses that very rarely apply but when necessary can save a client millions of dollars.  

For more information or to schedule a review of your contracts please visit our website, AlbinOldnerLaw.com or give us a call at 214-430-4440.