Coronavirus is taking its toll on corporations in Florida. The real estate market has been hit especially hard by fears of a worsening pandemic. When consumers are afraid of being quarantined or about the stock market decline, they are less likely to invest in real estate or other business opportunities.
Some real estate agents have mentioned that their high-end clients have stopped looking for properties for a few months to see how bad the effects of the coronavirus become. Other potential business partners are holding back on making offers to see if the prices will continue to drop due to the Coronavirus.
The Impact of Coronavirus on Commercial Agreements
The coronavirus, technically known as COVID-19 is a disease that has spread to at least 70 countries, including the U.S. Multiple countries, including Italy and Israel, have essentially shut down travel into their country. The coronavirus has negatively impacted supply chains, manufacturing, transportation, and the stock market itself.
Most scientific experts believe that the coronavirus will become an even worse pandemic in the next few months. Nobody knows for sure how much damage the virus will cause. However, many consumers are panicked and are acting accordingly when it comes to entering into business contracts.
What Happens When a Party Breaches His or Her Contract?
One of the main issues in corporate law involves breach of contract. The Coronavirus has already seriously negatively impacted the travel industry in the United States. Many cruise companies have changed their schedules or canceled trips to and around China because of the virus.
Cruise lines have begun canceling trips, rerouting trips, restricting which passengers board, and increased screening procedures for passengers who have visited affected countries. Some cruise lines have agreed to let customers rebook their cruises for at least two years after their planned sailing. Additionally, the Whitehouse has stated that it is considering giving assistance to industries that are extremely negatively affected by Coronavirus.
What happens when a business or corporation breaches its contract because it is unable to fulfill the terms of the agreement due to coronavirus? The basic principles of contract law require that in some cases, one party can excuse another party’s breach in extreme circumstances.
On the other hand, some contracts expressly allocate risks for these events with “force majeure” clauses. These clauses excuse one party’s performance when a superseding event like a pandemic makes it nearly impossible for one party to fulfill his or her duties. Courts will usually consider the following factors when deciding if a superseding event will excuse a party’s lack of performance of the contract, such as:
- How are the obligations under the contract impacted by Coronavirus?
- What is the specific contractual obligation that one party is not fulfilling?
- What is the precise language of the force majeure clause?
- What is the precise language of other contractual provisions that allocate risk?
- What is the governing Florida law on the matter?
What Happens When Governments Quarantine People?
The state of Washington has asked residents to voluntarily quarantine themselves in light of Coronavirus. Other governments have imposed non-negotiable quarantines. In a government-mandated quarantine, businesses could easily become unable to meet their contractual obligations.
For example, what happens when a public conference is canceled due to the coronavirus. Vendors who may have contractually agreed to sell goods at the conference now are barred from coming to the conference and meeting their obligations. Should the vendor bear the burden of the contract or the company putting on the conference? Determining who should pay for the risk of coronavirus depends on the terms of the contract itself.
The Allocation of Risk Under Force Majeure Clauses
Force majeure clauses in contracts vary widely. Some force majeure clauses narrowly describe which events will qualify. Others are extremely wide and state what should happen when any event beyond the reasonable control of the parties takes place.
Some force majeure clauses excuse the performance only when performance becomes completely impossible due to the occurrence. If a government bans meetings with more than 50 people, and a large conference must be canceled, that situation would likely constitute an impossible condition. After all, one party would need to break the law in order to fulfill the requirements of the contract.
What happens if a restriction on gatherings is only recommended but not required? This situation would likely not qualify under a force majeure clause that requires that fulfilling the terms of the contract must be impossible. Losing money or enduring other detrimental negative impacts is not enough to prove that performing the contract is impossible.
Courts Interpret Force Majeure Clauses in Light of the Entire Contract
Courts will interpret force majeure clauses in light of the entire contract. Other contractual provisions, including those regarding warranties, covenants, termination rights, and those involving indemnity requirements may also speak to the risk between parties. These clauses could also bear on whether or not one party is excused from performing because of coronavirus.
Anticipatory Breach and Coronavirus
What if a business knows that it will need to breach a contractual agreement due to Coronavirus in advance? A party should consider whether or not the other party will also not be able to perform the contract. When a party shows that it does not intend to perform under a given contract, a court can consider this to be an anticipatory breach. If you are facing an anticipatory breach, it is essential that you comply with any formal notice requirements in your contract. Not doing so can prejudice you should you seek to excuse your non-performance of the contractual obligations.
Our Corporate Lawyers can Help
As worries over coronavirus continue to increase, so do the concerns of corporations. If you are facing contractual issues related to coronavirus, our legal team can help. We will review your situation and discuss your best legal options. Contact our Florida corporate law firm today to schedule your initial consultation today.