At the beginning of March I was thinking about buying a new car. The car I drive now has almost 200,000 miles and the time seemed right to buy. I did not know at the time that the Coronavirus we had been hearing about for several weeks would land on our doorstep with an explosion and cause the gears of the economy to stop. I am glad I did not enter into a purchase contract at that time.
About a week later, as I was thinking about my business and where I want it to be headed in the next year, I entered an agreement with a consultant to guide me in the process. It was an expensive proposition. I viewed it as an important investment for the business. I signed the contract on March 9.
Two nights later I settled in to watch an NBA game when the game was cancelled right before the tip-off. The next day all major sports shut down and within days, the world was shut down.
I was in scramble mode trying to figure out if my revenue streams were about to dry up. I contacted the business consultant and told him I didn’t think I could make the investment. I wanted to back out of the contract.
We talked it through, he gave me some guidance on how to work in the coming COVID world, and I decided not to pull the plug.
I have been lucky. Many business owners have not been lucky. Many have had no choice but to walk away from contractual commitments because the revenue needed to cover expensive contracts just isn’t there. And none of us could have anticipated that a global pandemic would completely shut down the economy when 2020 started.
When 2020 started, the economy was humming, consumer confidence was great, and the unemployment rate was near record lows. Ninety days later and that world is unrecognizable.
And what I see on the horizon is lots of litigation about broken contracts when the dust clears and our courts reopen. And the question is going to be whether or not contracting parties are going to be able to walk away from their commitments because of the unexpected pandemic that shut the world down.
If you have not already begun to hear this term, you will. It is called “force majeure.” It is a concept that they taught us in law school.
I remember my professor telling us that a “force majeure” was like an “act of God” that made it impossible for a contractual obligation to be fulfilled. And because of the impossibility, the contract could not be enforced.
But there is no clarity that the global Coronavirus pandemic constitutes a force majeure that will excuse contracting parties from their obligations.
Contractual obligations are binding. A failure to comply with a contractual obligation is considered a breach which can be remedied by the law. Force majeure is a legal concept that will excuse a party from failing to perform its contractual obligations due to an unavoidable event beyond the control of a party to the contract.
But there are questions in the legal world about whether or not the current pandemic will excuse all contractual obligations. Different circumstances will have to be considered depending on the status of the parties. Rest assured though that courts are going to be dealing with lots of these claims over the next couple of years.