One of the many concerns arising from the economic/social shutdown caused by the COVID-19 pandemic is the status of outstanding contracts. We hear countless stories of goods not delivered, wedding receptions and vacations delayed, construction halted, and cancellation/postponement of sports and other entertainment events.
While many of the parties to these agreements want to be reasonable, some, if for no reason other than their own economic circumstances, may be offering solutions that are unacceptable on the other end. This is where the law of contracts comes into play, and it helps to have a basic understanding of some of the legal principles that govern the rights of parties.
Some contracts include a “force majeure” clause, which excuses performance obligations in certain unforeseeable events such as war, earthquake, flood or other calamity. In some instances the contract language is right on point, such as the NBA Collective Bargaining Agreement governing player salaries, which explicitly lists pandemic as an event excusing performance (i.e. paychecks). For the moment, however, the force majeure clause has not been triggered because the league has not decided whether the remaining games of the 2020 season are cancelled or simply postponed.
The absence of a contractual provision excusing performance does not end the discussion, however. There may be specific laws that govern the relationship regardless of the contract terms expressed by one or both parties. For example, New Jersey’s Consumer Fraud Act requires certain transactions to begin with a written contract, and mandates that some provisions be set forth in conspicuous sizes, fonts and/or locations in the document. On the other hand, there are many instances where a “contract” exists even though nothing was written down and signed by the party.
Even where there is no writing or the writing is silent on the subject of “force majeure,” courts will often analyze the obligations under legal doctrines of “impossibility” and “frustration of purpose.” As the headings imply, the law will sometimes change or forgive certain contractual obligations to perform or pay if a change in circumstance, unanticipated by one or both parties, makes the contract impossible to perform as agreed, or perhaps defeats, or frustrates, the essential purpose of the contract.
The point here is: whether you are presented with the ultimatum, “the contract says…” or the excuse, “we don’t have a contract,” there is a good chance that neither statement is the final decree of your legal rights. The law of contracts is comprehensive and often contradictory, which is why most law schools devote as much as twenty five percent of the first year of study to this single subject, just to set the table with some of the basic rules.
This is not to say that one party necessarily forfeits a full refund, or even that they must still perform for the same price. Just as the consumer should not have to pay for what they did not receive, the provider of those goods and/or services should not be left completely uncompensated for their efforts, overhead and lost revenue simply because it could no longer do exactly as the contract required.
In many cases, a court will not only analyze the rights of the parties, it will also seek to apply a fair remedy. Those confronted with one of the above scenarios should keep this in mind when trying to resolve a dispute under these unexpected circumstances.
It should be emphasized that every case is unique in its facts and applicability of various legal rules. The law is intended to be reasonable for both sides, and courts will treat disputes in such cases accordingly. Given the time and expense of litigation, one might be better served by trying to address the issue voluntarily, rather than launch into a legal battle, where the costs and risks can run high. A well informed approach will at least reduce the severity of the situation. A good attorney will guide this process, and may be able to leverage a negotiation with the threat of litigation if a resolution is not reached.