As a business owner, you are currently juggling many aspects of ownership from keeping your employees and their families safe, trying to maintain payroll during this tumultuous period as well as fulfilling any contractual obligations that existed prior to the COVID-10 outbreak.
But what if you cannot fulfill your obligations or are being hindered by another company that cannot fulfill yours? We’ve broken down the provisions in contracts written prior to the COVID-19 crisis.
Contracts Written Before COVID-19 Outbreak
Many business owners are wondering what rights they have during the COVID-19 outbreak as their own operations have been slowed or completely halted as a result of the pandemic. For many, the major concern is of contracts written before COVID-19 took over our daily lives.
We know that a force majeure provision allows a company to suspend obligations under certain circumstances where performance is impractical or impossible. But how do you know if you have a force majeure provision in your contracts?
Business owners must first review each contract in question to determine if the provision exists. It is important to know that the exact language used in the contract will determine the eligibility of such a provision in addition to applicable state laws.
A force majeure provision may cover events like natural disasters, government intervention, war, and terrorism. But know that some force majeure clauses only protect certain types of events while others may be all-encompassing and cover any unforeseeable, uncontrollable event that makes completing the contract impracticable.
Other contractual considerations and defenses include:
- Frustration of purpose: When an event occurs after the contract was created, the business may use frustration of purpose to defend against a breach of contract claim so long as the event was not caused by the business itself.
- Impossibility: This is a defense against breaking contractual obligations when the act of doing so is impossible as a result of uncontrollable events or interference.
- Impracticability of Performance: As per the Uniform Commercial Code, a party may be excused from a contract when completing or providing the service is impractical. For this to be held, the contract had to have been formed under the assumption that this event would have never occurred.
- Re-Negotiation: When no such provisions exist in your contract or are pursuable in your state, it may be in your best interest to pursue a re-negotiation of the contract to avoid costly litigation and keep your business ties in place.
Other Language to Review in Business Contracts During COVID-19
This is an unprecedented time for many business owners so be sure to leave no stone unturned. In addition to the above provisions and considerations, you may also want to review your contract for the following language which may qualify under COVID-19 circumstances.
- Contingency and extension of time clauses. More likely than not, if you are in the middle of contracts which must be followed through for you to complete your role, than your failure to comply with such an agreement may also hinder another party. Because of this domino effect, some contracts have provisions that give parties time extensions due to a superseding event. Even if no such clause exists, consider renegotiation to allow additional time allotments to all parties involved.
- Indemnity agreements and limitation of liability. You will need to review your contracts for indemnity clauses which may require one party to compensate the other for losses as a result of an event or breach. Consider also if there are any liability provisions included as this may add up later down the line.
If you are a business owner reviewing your contracts written prior to COVID-19, you may have many questions regarding your rights as a business owner as well as for your own companies longevity once the virus has subsided. Do not wait to seek legal advice. We are working with business litigation lawyers across the country to help you seek legal action and recourse. Contact us today.