COVID – 19 MESSAGE FROM Soroka & Associates, LLC

As you already know, the coronavirus (COVID-19) is creating challenges for all of us. We hope that you all are staying safe and healthy and taking all the necessary precautions during this challenging time. At Soroka & Associates, LLC, we are committed to our employees, associates, clients, and perspective clients. We always strive to provide a safe and comfortable environment to everyone at our office.

Our office has remained open during our regular business hours Monday through Friday and by appointment during the weekends. We have taken additional measures to assure the safety everyone that enters our office. Our staff and cleaning personnel have increased the frequency and scope of cleanings and disinfecting at our office in accordance with the CDC recommendations to assure the safety of anyone that enters our office.

As an extra step to our commitment to safety, we have also adapted to the changing environment, and now offer virtual consultations via Zoom, Facetime, and Skype during our business hours. As always, phone consultations are available by appointment, at all hours, any day of the week.

Contract Obligations During Covid-19

| Sep 29, 2020 | Firm News |

Have You Been Affected By Cancellations Due To COVID-19?

Circumstances surrounding COVID-19, including responsive policies implemented by government entities, are greatly affecting our ability to execute contracts: conferences, concerts, weddings, sporting events, all being canceled in response to COVID-19. So, can you obtain relief for these breaches? Can you avoid liability for these breaches? How does COVID-19 affect the enforceability of contracts?

Force Majeure Clause

The most common defense for breach of contract during this global pandemic is force majeure. A force majeure clause is written into the initial contract to limit liability of parties who cannot perform the contract due to an unexpected event. Some force majeure clauses are written using very specific language and include pandemics or contagions as events that will void the contract. Other clauses use broad language like “including but not limited to” and some refer to such events as “acts of God.” Contact an experienced attorney to read the language of your contract to determine whether or not COVID-19 is an event included in your force majeure clause.

What Happens If There Is No Force Majeure Clause?

If there is no force majeure clause, we look to the Doctrine of Impossibility.

Doctrine of Impossibility

The Doctrine of Impossibility is strictly applied to excuse parties from a contract if:

  1. The existence of a particular thing is necessary for a party’s performance, and the thing ceases to exist; or
  2. A performance must be made by the party personally, and the party dies or becomes disabled; or
  3. A supervening law makes performance illegal

During COVID-19, the most common defense through the Doctrine of Impossibility will be that a supervening law makes performance illegal. It may be illegal to perform certain contracts due to executive orders and new policies implemented in response to the pandemic since March 2020. These orders and policies are also consistently changing and are different from city and city and state to state. Contact an experienced attorney to evaluate the impossibility of your contract due to the relevant orders and policies in place.

Doctrine of Impracticability/Frustration

The Doctrine of Impracticability/Frustration is another way to excuse parties from a contract. The Doctrine of Impracticability protects the party contracting to provide the good or service (seller). The Doctrine of Frustration protects the party contracting to pay for the good or service (buyer).

Sellers

In order to qualify under the Doctrine of Impracticability, a party must show that:

  1. An unexpected event occurred
  2. This event not occurring was a basic assumption on which the contract was made
  3. The seller must not have assumed the risk
  4. The unexpected event must have made performance of the contract commercially impracticable
  5. The event is not the seller’s fault

Buyers

In order to qualify under the Doctrine of Frustration, a party must show that:

  1. An unexpected event occurred
  2. This event not occurring was a basic assumption on which the contract was made
  3. The buyer must not have assumed the risk
  4. The unexpected event must have substantially frustrated the buyer’s principal purpose
  5. The event is not the buyer’s fault

What is a Basic Assumption?

Whether the parties took it for granted that the event would not occur. For contracts written prior to COVID-19, a global pandemic was likely not foreseeable or negotiated in the formation of the contract. However, if the contract was formed after the World Health Organization declared COVID-19 a global pandemic, it may be difficult to argue that the pandemic was unforeseeable or that the contract was made on the basic assumption that there would not be a global pandemic.

What is Assumption of Risk?

Again, likely the parties did not foresee COVID-19 and its ramifications. It depends when exactly the contract was formed, before or after COVID-19 was declared a global pandemic, and whether there was any discussion of COVID-19 in the formation of the contract.

What is Commercially Impracticable?

Generally, increased cost alone is not enough to constitute commercial impracticability. If the seller breached the contract because COVID-19 limited their profit, that may not be enough to excuse them from their contractual obligations. However, health and safety can render performance of a contract commercially impracticable. So, if a party is breaching because of an inability to be safe during this health emergency, that may be enough for the contract performance to be commercially impracticable.

What is Substantially Frustrated?

Even if your intended contractual result does not occur, your principal purpose is not necessarily substantially frustrated. That is the difference between some events being postponed instead of being cancelled. Because the event will still occur, your principal purpose may not be substantially frustrated. Contact an experienced lawyer to evaluate whether you can get out of your contract under the Doctrine of Frustration.

What Else Should You Look Out For?

  1. Contingency Clauses
    It is possible that the contract is contingent on the performance of a third party and may be excusable in the event of the third party’s refusal or inability to perform.

  2. Extension of Time Clauses
    It is possible that the contract allows for an extension of time for the performance if there is a superseding event causing delay.

  3. Limitation of Liability
    There may be language in the contract limiting damages that can be recovered in the event of a failure to perform the contract.

  4. Indemnity Agreements
    There may be language requiring reimbursement to one party for losses due to the breach of contract.

  5. Insurance Coverage
    Check insurance policies of the parties in the contract that may provide relief for any losses due to breach.

The enforceability of contracts has become prevalent issue during this global health crisis, but it is still a very complicated issue. Please consult with one of our attorneys at Soroka & Associates LLC and we can assist you in obtaining relief from COVID-19 related breaches of contract.