By: Charles A. “Chuck” Borek, J.D., MBA, CPA – Guest Contributor – Charles A. Borek, J.D., and The Borek Group, LLC – Special Counsel to Elville and Associates, P.C.
Those miscellaneous provisions at the end of the contract that nobody pays attention to – you know, the severability, survival, and further assurances clauses – have suddenly become very important. The truth is they have always been important. Like footnotes, however, many contracting parties (and even sometimes contract drafters) treat them as if they are inconsequential ancillary add-ons that have more to do with tradition than with transactions.
We even have a dismissive name for them – “boilerplate,” a term once used to describe the metal used to make steam boilers that morphed into a term to describe newspaper writing that could be used over and over again without change. Webster’s now defines it as “formulaic or hackneyed language.” But boilerplate, as some are now discovering, can be critically important.
Due to the COVID-19 pandemic, many contracting parties are now dusting off those boilerplate provisions and are paying particular attention to the clause that is commonly referred to as “force majeure.” That is a French term meaning “a superior or irresistible force.” In contract law, it generally indicates that a party’s performance is excused when that performance is made impracticable due to the occurrence of an event that everyone assumed would not occur. Not expecting something to occur, however, is different form assuming that it would not. The question many are now asking is if the lack of a pandemic is an implicit condition contemplated by a contract. The reality is that most contracts are formed without anyone ever considering the effects of a pandemic on the agreement. So, does COVID-19 save you from a claim of breach when you are unable to perform your contractual obligations? Can you get damages when the other party fails to perform because of COVID-19?
Maybe. Maybe not. An unforeseen shutdown of major sources of supply which either causes a marked increase in cost or prevents performance altogether may cause the force majeure provision to be invoked. Performance may also be impracticable because it will involve a risk of injury or sickness that is disproportionate to the ends to be attained by performance.
On the other hand, “impracticability” means more than “impracticality.” A mere change in the degree of difficulty or expense, unless well beyond the normal range, may not amount to impracticability, since it is this sort of risk that a fixed-price contract is intended to cover. Furthermore, a party is expected to use reasonable e‑orts to surmount obstacles to performance, and a performance is impracticable only if it is so in spite of such efforts.
In short, the law requires more than inconvenience or even substantial hardship. The legal question is if the agreement was founded on an assumption that a pandemic would not occur. Did you consider the possibility of a pandemic the last time you entered into a contract? Probably not.
So where does that leave us? In unchartered waters. At least with respect to contracts that have already been entered into. The lesson here is that pandemics are now issues that we should consider when making a contract, and force majeure provisions should be tailored to indicate exactly what effect any such situation will have on performance. Consideration should be given to whether performance is excused or just delayed, for instance.
Unfortunately, it often takes a previously unimaginable tragedy like COVID-19 to draw our attention to things that have been important all along. Rare occurrences lull us into complacency. Complacency sometimes results in economically devastating consequences. While social distance and disinfectants may be our main health concerns right now, the health of our business and economic lives shouldn’t be ignored. It’s time to start paying attention to the entirety of contracts, including those provisions we hope we never have to use.
Chuck Borek is a business and tax attorney with almost 30 years of experience representing individuals, small businesses, and nonprots. Chuck earned his joint JD/MBA summa cum laude from the University of Baltimore, where he was the Editor-in-Chief of the Law Review and the recipient of the 1993 Law Faculty Award. He has taught law students as a visiting professor and adjunct professor of law at American University and the University of Baltimore and has lectured at Dickinson law school of Penn State University. Chuck has written for Thomson-Reuters, Bloomberg BNA, and the AICPA. His book on contract drafting is used by lawyers throughout Manyland and has been cited by the Maryland courts.