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Concerned about Contract Disputes in the Wake of COVID-19?

Legal Insights, a Buckley King Advisory

April 10, 2020

Nearly all small businesses in the U.S. are parties to numerous commercial contracts with, or involving, third parties -- everything from mortgages, leases, and equipment to service, benefits, insurance, operations, and vendor agreements. As businesses experience (or are affected by) significant downturns in the wake of COVID-19, many will be literally unable to fulfill their ends of the contracts.  What can they do and what relief is available? 

For many, the answer can be found in the contract itself.  Force majeure clauses are commonly included in many commercial agreements. Coming from the French, roughly translated as "superior force", this clause becomes operable when an outside and unexpected influencer -- such as a pandemic or civil order to close operations -- enters the picture. A force majeure clause may provide full or partial contractual relief if certain conditions are fulfilled.

Ohio law provides for certain defenses -- impossibility and impracticability -- in such events. These common law defenses rely on the simple equitable notion that fulfilling a contract term has become literally impossible; therefore, the "breaching" party should not be held responsible as there was no way for it to comply, or to have anticipated the unforeseen events.  Another defense that can apply is known as "frustration of purpose". The effect of these defenses can range from temporary excuse of contractual performance to grounds for terminating part or all of the contract.

As always, there are significant commonalities and limitations to the use and application of these legal precepts. Seasoned business attorneys with experience in drafting, analyzing, and litigating these types of commercial transactions should be the first to review the subject agreement, and to provide advice on how to address the situation. Ideally, a breach of contract lawsuit can be avoided which, in turn, avoids unnecessary litigation expense and conflict. It may also be the case that the parties can work together to resolve a dispute based upon a joint commitment to find a solution. Experienced lawyers can often find a sensible middle-ground allowing for the "best solution" for all involved.