Getting out of, delaying, modifying, or enforcing contracts as a result of COVID-19 or related government actions and restrictions
COVID-19 Legal Updates April 28, 2020
Many businesses and contracting parties are looking at the possibilities of getting out of, delaying, modifying, or enforcing contracts as a result of COVID-19 or government actions and restrictions.
Typical legal issues and arguments relating to those actions include: force majeure clauses, impossibility, commercial impracticability, frustration of purpose, bankruptcy, or other possibilities.
Each contract is unique, and each factual situation also is unique. Both have to be separately evaluated in each situation. For example, I have read recent articles about Hollywood studios enforcing force majeure clauses. But force majeure clauses are just one of the possible issues to evaluate, and the wording of each different force majeure clause has to be considered and evaluated in light of the particular factual situation, jurisdiction, venue, applicable state law, and other considerations.
The typical situation is: (A) your supplier cannot provide you with the materials, parts, goods, or services that are provided for pursuant to the contract, or (B) you cannot provide the contracted for materials, parts, goods, or services to your buyer. Can you, your supplier, or your buyer get out of the contract or succeed on an action to enforce the contract? The answer depends on an evaluation of the facts and variables, some of which will be relevant and some of which will not be relevant depending on the facts and circumstances of your particular situation. The following are some of the issues to consider:
- What are the terms of the contract and what are the terms with respect to providing the materials, parts, goods, or services?
- What was the relevant contractual intent of the parties in this type of situation, if there is a provable intent?
- What body of law will apply? Is there a choice of law clause? Where are the parties located, where was the contract entered into, where are the materials, parts, goods, or services to be delivered, where does ownership or title to the materials, parts, or goods legally change hands, etc.?
- Is there a jurisdiction or venue clause?
- What is the reason that the materials, parts, goods, or services cannot be provided?
- How hard did the party try to provide the materials, parts, goods, or services? How much of an effort was made?
- Is there an element of party or provider uniqueness to the materials, parts, goods, or services such that they can only be provided by that party or provider?
- Is there a force majeure clause – i.e., relating to impossibility or frustration of purpose? If so, does it apply in this circumstance, and how?
- Absent a force majeure clause, or where there is such a clause but the clause isn’t applicable or doesn’t provide a sufficient remedy, what additional and other legal and factual arguments exist to establish impossibility, commercial impracticability, frustration of purpose, or other possibilities?
- Does the UCC apply? If so, the UCC of which jurisdiction or source, and how does it apply?
- Are there any applicable industry standards, or customs and practices that might apply?
- Is it that the materials, parts, goods, or services cannot be provided, or is it that there is a delay in doing so?
- If it is a delay, is the delay material to the receiving party? How material?
- Can the parties otherwise resolve the problem by different or modified terms?
- What are the provable damages? And the issue of provable damages always requires a separate detailed evaluation.
- Is a legal action for declaratory relief to get out of the contract sufficient, or is a request for damages advantageous?
- Are attorneys’ fees recoverable?
- Will or might a cross-action or claim be brought by the other party or parties?
- Is bankruptcy a consideration for any of the parties?
- And the list of issues continues as each such situation needs to be evaluated based on its particular facts and circumstances.
Many businesses and contracting parties are looking at these issues and the possibilities of getting out of, delaying, modifying, or enforcing contracts as a result of COVID-19 or government actions and restrictions. Rimon has attorneys who can help you with these issues and situations.
Dave Tate is an experienced litigation and trial attorney and counselor handling all aspects of case evaluation, discovery, trial, settlement, and appeal in California state and federal courts; and advising professional and business clients on duties and liabilities. Mr. Tate’s litigation cases involve two primary areas: business litigation and trust and probate litigation. Mr. Tate has board and audit committee experience and also provides representation on board, audit committee, and governance matters. Mr. Tate also provides services as a mediator, and is a CPA (California, inactive).
Attorney Advertising. This document is not intended to be and is not considered to be legal advice. Transmission of this document is not intended to create, and receipt does not establish an attorney-client relationship. Prior results do not guarantee a similar outcome.