As you can imagine, we are all dealing with unprecedented times during the Coronavirus/COVID 19 crisis. These range from mandatory government shutdowns, restrictions or limitations and other economic market pressures caused by same. Contract law is no different with respect to the unprecedented nature of this pandemic. However, there is guidance we can follow based on common law contract principles.
In any contract analysis, one must first look at the terms and conditions set forth in the contract and/or related documents between the parties for an answer. One typical routine contract clause that is extremely relevant to the coronavirus crisis is something called a “force majeure” clause. “Force majeure” is a French phrase meaning an unforeseen overpowering force. The purpose of a force majeure clause with in a contract is to define the area of events that might excuse one party or the other from failing to perform its obligations under a contract. Obviously, if a contract contains a force majeure clause, the language of the clause must be examined to determine whether or not the present situation could possibly trigger the clause an excuse one party or the other from performing its obligations.
For instance, in reviewing contracts and leases for my clients over the last few weeks in order to determine their rights and responsibilities, I have seen several different force majeure clauses. Typically, however, the common thread among these clauses is the inability to perform under the contract as a result of events beyond the control of the parties. Some of force majeure clauses specifically identify “government shutdowns” and “the inability to obtain labor” as such unforeseen overpowering events which are not within the control of the parties. I have been successful with at least two of my clients in convincing their landlords that the force majeure clauses within their leases stopped the tenant’s obligation to pay rent during the course of the shutdown.
For contracts that do not contain force majeure clauses, application of the common law contractual defenses of impossibility and/or impracticability will apply. Under this theory, a party may be excused from performance of its obligations under a contract where doing so has become either impossible or substantially more difficult due to an occurrence of an event that was not within the contemplation of the parties and was not foreseeable by the parties at the time the contract was entered into. It should be noted that the impossibility and/or impracticability defenses do not justify nonperformance of a contract where the performance has merely become more difficult.
Of course, at this point in time, no one knows how New Jersey or other state’s courts will apply the above legal principles to each situation. As is the case with all contractual disputes, the specific facts of each and every situation will have to be presented and argued to the courts. Because each industry, business, etc. find themselves in different situations we anticipate a significant amount of litigation in the coming months. Thus, it is important to retain any and all documents that you have all come into possession of as they relate to your contractual obligations as well as your inability to “perform” due to the coronavirus pandemic.
Should you have any questions or concerns or should you require a review of a lease or contract as it relates to these issues, please do not hesitate to contact our office.