Enforcement of Commercial Contracts during the Pandemic
The COVID-19 pandemic has impacted California businesses in numerous ways. One of those consequences is the inability of many businesses to now comply with their obligations under contracts they executed pre-pandemic.
Here are some questions to consider when faced with the possibility of failing to perform contract obligations during these times, or if a counterparty to an agreement has not delivered the goods or services promised under a contract.
What is the governing law?
Depending on the presiding jurisdiction’s law, the noncompliant party may be able to use exceptions or excuses to protect themselves from potential noncompliance. One such law is the impossibility or impracticability excuse. Section 1511 of the California Civil Code states that performance may be excused by the following reasons:
- By the operation of law
- By an “irresistible, superhuman cause”
COVID-19 could be considered a superhuman cause. In the case of nonessential businesses, the operation of law could also apply as government ordinances caused businesses to close.
Does the agreement include a force majeure clause to protect parties who have failed to perform?
Many agreements include force majeure as an exception for liability. Force majeure covers unforeseeable circumstances that prevent a party from performing their obligations under a contract. In many instances, the definition included in the agreement may be broad enough to consider COVID-19 a cause of force majeure preventing the performance of the contract obligations.
Is the pandemic the real cause of the failure to perform?
Another issue to consider is whether the pandemic was the direct cause for the inability to perform and whether the impossibility excuse would apply.
Should performance be delayed rather than suspended?
The parties should evaluate whether the nonperforming party will at some point be able to perform its obligations. Especially now, as economies are reopening, a nonperforming party may want to consider whether it will soon be possible to perform its obligations and avoid possible litigation for a claim for damages from the other party.
Contact an attorney with experience in commercial agreements disputes
If your business has had issues with performing obligations under commercial agreements, or if you have entered into a contract for which the other party has failed to perform their obligations, and you would like to learn more about your rights, we may be able to help. Contact the Los Angeles business litigation attorneys at the Obagi Law Group, P.C., for help with your case.
This post is informational only and should not be understood as legal advice. This post does not create an attorney-client relationship.