There will be far reaching impacts of the corona virus in the immediate future and beyond. Legally, the virus is going to impact contracts as parties seek to avoid their legal obligations under force majeure.
LOOK TO THE AGREEMENT
It is highly probable that the economic and social turmoil brought on by the virus was not accounted for in the written agreement between the parties. Typically, a well written agreement will provide a ‘force majeure’ clause, which provides that due to unforeseen circumstances a party may avoid otherwise enforceable contractual obligations without being declared in default. Force majeure clauses often refer to acts of god, natural disasters, and the like
If no such provision was provided for in the agreement between the parties, they will have to look to general commercial law regarding how their respective rights will be impacted. There are several accepted principles of the law that should be reviewed by counsel in conjunction with the agreement in the current volatile environment, but for the purposes of voiding the agreement they are; (1) lack of consideration and(2) impossibility of performance. Each provides for a basis, under the circumstances, to argue that a contract cannot be enforced.
LACK OF CONSIDERATION
Typically, this type of argument is made shortly after the contract is entered into. A lack of consideration attacks the very heart of the agreement in positing that there is no value for the bargain. Based upon the current situation, and the massive amount of economic volatility associated with the value of products and services, there are multiple types of industries where this type of argument could work. The industries that have been hit the hardest would have the best argument. If you or your business were entering into a transaction where there was going to be a purchase of a property or business which had value before the pandemic, but now has no value, a court may void the contract.
The difficulty with this argument is that it is normally used or argued based upon the conditions near or at the time of the signing of the agreement. Thus, if the contract or agreement was entered into months or years before the pandemic, this argument will likely not be successful.
IMPOSSIBILITY
The doctrine of impossibility of performance is typically argued as a defense in conjunction with the other party’s request for the specific performance of the terms of the contract. For example, if you paid a sum of money to a contractor to perform work on your home, and your home is destroyed in a fire, you can get your money back because it would be impossible for the contractor to perform the services. Though impossibility usually goes to the heart of the contract and the reason for entering into the agreement, under the circumstances presented by the corona virus the ability to perform may be rendered impossible.
If the agreement provides that time is of the essence, the fact that a state of emergency has been declared may render a party’s ability to provide services or even get to an event impossible. A party that is forced to comply with regulatory authorities that conflict with their ability to perform will usually persuade a judge that the lack of performance must be excused and the contract voided. If, and when, governments declare that all residents must be quarantined most contracts that require date specific performance, such as weddings and parties, will be voidable due to impossibility.
Vendors and other parties to an agreement must be immediately informed about a desire to void the contract in order to compel them to return any deposits or fees paid in advance. If you are a party to a contract and are interested in better understanding you or your companies’ rights contact our attorneys today.
Michael Orozco is an attorney with Price, Meese, Shulman & D’Arminio, PC, contact him at (201) 391 3737 ext. 123, or via email at morozco@pricemeese.com.
