COVID-19 continues to disrupt our lives. It is posing a significant challenge for every kind of business around the country, as local governments act to stem the growing community-wide infection.
As litigators, we anticipate these circumstances will lead to a series of legal disputes, each with varying results depending upon the provisions within their contracts with vendors, suppliers, and any other third-parties with which the business interacts to carry out its work.
Therefore, over the next several weeks, questions concerning who is responsible in light of nonperformance under contractual arrangements will arise and companies will need counsel as to how to proceed in light of the contractual provisions, and defenses, in play:
Force-Majeure Clauses – A typical provision in many contracts is one which lists specific events that relieve parties of their obligation to perform. Whether such a provision applies to your situation to relieve you or your counterparty from performing under the contract will depend upon the language used. Our firm has already been asked about these provisions’ applicability to specific situations, and there are a number of different ways to interpret some of the language with which we have been presented. These provisions are not as commonly litigated as other provisions because many of them are invoked only in situations where something near an “act of God” has intervened to be the actual cause of nonperformance. The key is whether one of the provision’s listed events matches the current conditions. If the hope is to argue that an “unforeseeable event” arose, many courts may be loathe to accept that argument in light of the severe epidemics (SARS, Ebola, West Nile, etc.) previously widely reported in the media and even experienced locally. Sophisticated parties are likely to have their sophistication used against them; so going forward, businesses should be sure their contracts’ force-majeure clause addresses epidemics, pandemics, pathogens, or related outbreaks.
Impossibility of Performance – More broadly than force-majeure clauses, there is a common-law defense to failing to perform under a contract when there is a supervening and unexpected event that makes performing impracticable or impossible. Applicability is specific to the circumstances, however. Generally, courts have applied this defense narrowly, like when the person necessary for the performance dies or becomes incapacitated, when something specifically needed to perform is destroyed or deteriorates, or when a change in the law makes performance illegal. (Illegality is a related defense.) But economic hardship or increased costs of performance is usually not enough to qualify. In light of the many governmental directives in cities like Dallas, we anticipate this defense will receive quite a bit of attention in the coming year.
Sale-of-Goods (Uniform Commercial Code) Defenses – Many companies are in the business of buying and selling goods (as opposed to selling their services). The law that applies to those transactions comes from the Uniform Commercial Code (UCC). Typically, delays in delivery are not a breach if performance was made impracticable (a) when the contract makes a basic assumption that has become inapt or a contingency the contract contemplated occurred; or (b) by good-faith compliance with a governmental order or regulation. Applicability may be complicated in these circumstances. For example, to-date, Tarrant County has not moved to put in place the more restrictive orders that Dallas County has. Complexity will only increase for companies that are doing business throughout the state or country, with differing governmental directives.
Acts of God – The law has long recognized that events caused by an act of God may be a defense to liability. Typically this would apply where there has been a hurricane, tornado, flood, or other storm that is so unusual that a reasonable person would not be expected to guard against it. But to apply as a defense, the party’s own fault cannot be mixed in with the unusual event as the cause of nonperformance.
Much ink will be spilled to determine who will be left holding the bag. As a result, Mitzner LLP welcomes you to reach out with any questions you might have to obtain some clarity or counsel in these uncertain times.
