Legal Update - COVID-19

Coronavirus: Effect on Contracts:

Events, conventions, weddings, and trade shows are booked months if not a year in advance. Most are time sensitive and cannot be rescheduled in a couple of weeks. Construction contracts with completion dates and penalties for delay will surely be impacted by the virus. Delivery of goods and inventory for retail and wholesale sales of landscaping, gardening, and farming products will be late – who’s liable? Recent events worldwide related to the coronavirus have put many businesses in uncharted waters. As a result of events beyond the control of either party to a contract, one or both of the parties may be unable to perform as anticipated. Who bears the loss and what are the damages? Are contracts that are “impossible” to perform enforceable? Many contracts have clauses to protect the parties known as Force Majeure clauses.

Force Majeure (fors ma-zher): [Law French “a superior force”] An event or effect that can be neither anticipated nor controlled. - The term includes both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars). – Black’s Law Dictionary, 657 (7th Ed. 1999)

While many contracts contain Force Majeure clauses, they are rarely given much thought because by definition the events that occur to cause a traumatic event are not anticipated or controllable. Therefore, how could a Force Majeure clause be negotiated and worded perfectly for the circumstance that occurs?

To-Do: Identify Clauses – Notice Requirements:

Review any contract or agreement affected by the coronavirus events and closures and identify the Force Majeure clause. Said clause may be titled something else such as “Impossibility”. The clauses vary dramatically; some allow contracts to be canceled without liability under narrow defined circumstances and other clauses only allow delay in performance.

It is important to review the clause with an attorney as soon as possible, as oftentimes there are notice requirements that obligate a party to give notice within 5 or 10 days of an event. The events that trigger a Force Majeure clause may include numerous words including, but not limited to, disease, strike, civil disorder, curtailment of the transportation facilities, emergency, government regulation, acts of God, war, and terrorism. It is very difficult to have every negative event match one of the stated words perfectly, wherein both parties, and the court agree on the definition. It is common that the stated hard-to-define event must make it impossible or illegal to perform a contract. Illegal is probably a term that can be determined. Impossible is a very high standard. It doesn’t mean hard, inconvenient, or difficult – it means “incapable of occurring” per the Merriam Webster Dictionary.

In a commercial contract the court interprets and enforces the contract a party signed, not what is “fair”. There is not an inherent right to a Force Majeure clause (so always have one in your contracts). Without such a clause there is a legal argument of “frustration of purpose”. This is a fact-intensive argument that requires extensive litigation.

Conclusion:

If coronavirus affects a substantial financial obligation or right of a person or business in a contract, seek legal counsel promptly to review Force Majeure clauses and notice requirements. Law offices are allowed to remain open as they are classified as a critical business pursuant to Colorado Public Health Order 20-24.