What can I do if COVID-19 has impacted my ability to fulfill a contract?

The past year has pushed many businesses to the edge of operations and created challenges that are difficult to overcome. As a result of COVID-19, businesses are dealing with situations where they can't have their employees come in or even customers for that matter. This has resulted in a strict and sometimes severe restriction on the business's cash flow, as well as its ability to fulfill previous agreements.

So what if these restrictions create a situation where you are unable to fulfill a contract? This particular question deals most specifically with businesses that require continuous delivery and are having to deal with inconsistencies. Some contracts that we deal with involve commercial matters and long-term supply contracts. These are the ones that can really be affected for situations like what we're dealing with right now. Unfortunately, it becomes a question of “what can I do to fix the situation?”

This situation depends on the matters of the contract. Every contract is different so we have to start by looking at what your contract says and what the agreement outlines. By looking at your agreed terms and the parties involved, we can look to find provisions or exemptions from the contract. Some contracts contained a force majeure clause or a superior force clause for situations like the pandemic, which is classified as a significant external event. The wording of this can vary depending on the type of contract and can keep you from having to fulfill the agreement. For this to work, the contract must be phrased in generous terms so that it can be applied to new situations, such as an ongoing pandemic.

Typically, most commercial contracts will not have an external force disaster type situation circumstances built into them. Once we can rule out the forced clause as a course of action, we can begin to look at other areas of the contract and find ways to create the best outcome. When the question is related to COVID-19, we are working in unprecedented territory. The first thing is to sit down with a legal representative and analyze the contract from start to finish.

Jon Goheen, CBM Associate, specializes in Corporate/Commercial Litigation, Real Estate Law, and Business Law. Get in touch to learn how Jon and the team at CBM Lawyers can help your business.