Contracts During Crisis
Updated: Apr 2
As the coronavirus outbreak continues, we've published a concise e-book on a fundamental question: What effects could the crisis have on your contract rights and obligations?
Here’s a preview of our guidance, distilled to three points.
1. Check the contract.
It may contain a force majeure clause. That’s a clause stating that if specific events happen, a party’s contract obligations are excused.
The clause may be labeled force majeure. Or it might not be. So it’s necessary to look past the labels to the contract’s substance.
2. Know your defenses.
Even if the contract does not contain a force majeure clause, background contract law principles may excuse a party’s obligations. At a minimum, you should consider three: impossibility, impracticability, and frustration of purpose.
Under the impossibility doctrine, a party (usually) has no obligation to perform the impossible. Death, disability, and illegality are classic grounds.
Impossibility’s modern cousin, impracticability, similarly holds that a party has no obligation to perform the impracticable. "Impracticable," however, means more than merely "inconvenient" — it means extreme difficulty well beyond any normal range.
Finally, frustration of purpose holds that when a supervening event renders a contract worthless to a party, his obligations under the contract may be excused.
These three defenses may empower you to dig in your heels, if push comes to shove. The crisis, however, will end eventually. And many of your contractual relationships will continue long after.
3. Think big picture.
So it may well be in your long-term interest to make short-term accommodations to your contract partner. Or to request them from your contract partner.
There are two primary vehicles for doing so: modification and waiver. The fundamental distinction between the two is "consideration" (that is, a bargained-for exchange — the this I give you for that). Modification requires consideration. Waiver doesn't.
Finally, taking a step back, again keep in mind that this crisis will end. But inevitably, at some point, others will arise. So learn from this crisis. And incorporate its lessons into your future agreements.
If you have questions, reach out. And, of course, check out the book.