Business Contracts in the Time of Coronavirus

As everyone’s lives are upended due to the coronavirus pandemic, business as usual seems almost impossible. For example, what about that seemingly rock-solid business contract you signed last fall? Performing as specified may not be possible now. So, what are business owners and managers like you supposed to do? To provide a bit of guidance in these uncertain times, we have put together a list of items that may help.

Force Majeure Clause

This is likely the most common contract provision to be activated by businesses during the COVID-19 pandemic. A force majeure clause addresses “acts of God” and other major, drastic interruptions to business operations. It might also include government orders that interfere with contract performance. Check to see if your contracts include this provision and how it is worded. There is a chance it might not be worded to apply to the current situation.

In most cases, the cause of the provision must meet the following criteria to be enforceable:

  • Unforeseeable.
  • Stemming from circumstances completely outside the control of the contract’s parties.
  • A result of a situation apart from any party’s negligence or willful misconduct.

Common Law Doctrine

What if there is no provision in your business contracts that provides a way out for everyone involved? If that is indeed the case (your attorney should verify this), then there might be a way that you are excused from having to perform under the contract. Three doctrines from common law that may prove relevant are:

  • Impracticability: This doctrine may be successfully used when performance of a contract is simply infeasible.
  • Impossibility: The doctrine of impossibility has similar features to impracticability; however, if the impossibility doctrine is used successfully, then a party to a contract has shown that performance as stipulated in the underlying contract was effectively impossible.
  • Frustration of Purpose: Finally, the frustration of purpose doctrine is a legal tool that may be attempted when an unforeseen situation destroys one party’s main reason for entering into the contract in the first place.

These doctrines are best understood with the help of a trained legal professional, so you should consult with an experienced business attorney if you think they might be relevant to your situation.

Handling Contracts in the Wake of COVID-19

It has always been important to make sure that your contracts are drafted as thoroughly as possible. Moving forward, it’s going to be more critical than ever to make sure that no stone is left unturned, given the increased risk of unpredictable outcomes in the future. It might be advisable, too, to purchase insurance that will compensate if one party or another doesn’t perform. An ounce of prevention is worth a pound of cure! If you need help structuring your contracts for a post-COVID world or want to investigate your options for managing the contracts you already have, give IGC a call so we can help you chart the best path for your business.

Integrated General Counsel