Contractual Performance in the course of the COVID-19 Pandemic II
Jeffrey R. Schmieler, Esquire
It is important to be cognizant of the fact that all persons and entities who are on both ends of a contract have interests in determining and establishing which party should bear the costs of non-performance and that individuals and businesses on both sides of a contract are affected. Virtually everyone is experiencing contracts affected by the pandemic, inclusive of landlords and tenants; business and customers; and vendors and suppliers. Most contracts in existence are being affected including contracts currently being negotiated which may need clauses to excuse performance in the event the pandemic has not ended by a certain date.
While the ultimate liability is being determined in courts of law, it may be of more importance for the parties to preserve their contractual and business relationship which was in existence prior to the devastating effect of the Coronavirus pandemic, which will require reasonableness on the part of both parties to the contract. In this respect, the negotiation of a reasonable amicable resolution should be considered and is highly recommended. During the course of negotiations, the reasonableness on the part of both parties will be axiomatic in achieving an amicable resolution of the dispute. Should negotiations not resolve the contractual dispute, then mediation is certainly a worthy consideration for potentially resolving the dispute. This can be done remotely with the selected mediator and all necessary parties and their attorneys.
Should the parties not amicably resolve the contractual dispute through good faith negotiation or participation in mediation, then and in that event, the contractual dispute will ultimately result in litigation in which the cases will be highly fact specific and will depend upon the judicial determination of the meaning of the language of the contract and the relationship of the parties. In the event of litigation, the contractual terms and provisions inclusive of (1) Force Majeure clauses; and (2) Material Adverse Effect clauses will ultimately prove to be determinative together with the extra-contractual legal Doctrines of (1) impossibility of performance; (2) impracticability of performance; (3) frustration of purpose, and (4) acts of God.
The application of these legal principals in consideration of the specific facts of the case will determine whether the Coronavirus pandemic excuses one party or the other from performing in accordance with the terms of the contract.
Even if a contract does not specifically refer to pandemics, the recent Orders from the President, Governors, Mayors effectively shutting down businesses and ordering people to stay at home are likely to trigger force majeure provisions in a contract or the invocation of the doctrines of impossibility or impracticability. The governmental restrictions closing businesses and restricting the freedom of movement may cause contractual performance to be impossible.
At present, during the time of the Coronavirus pandemic, contractual performance is exceeding problematic and complex. The ultimate resolution of the legal issues presented, if not resolved by good faith and reasonable actions by the parties to a contractual dispute, will be determined by the legal system. Reasonableness on the part of both parties to a contractual dispute should always be considered as a viable alternative to litigation and a potential adverse judicial determination.