Handling Contract Disputes During COVID-19: What to Know
During the pandemic, all types of businesses have taken a financial hit, and are dealing with contract disputes as they struggle to stay afloat.
Here’s some helpful knowledge about how to best handle these specific situations. And how seeking legal assistance would be beneficial during this stressful time.
Introduction
Businesses of all sizes and in all industries are struggling thanks to the coronavirus pandemic. They are facing situations that they had never imagined. And, they are finding themselves having to make some really tough decisions. Lawsuits are running rampant. Businesses are closing at alarming rates. And many people are left feeling hopeless and out of options.
Those who are in business know that contracts are crucial. Having something in writing – and signed – holds someone accountable for certain actions. It is a guarantee. Well, it was. COVID-19 has behaved like a tornado, tearing through businesses and wrecking relationships.
If your business has been severely impacted by COVID – how can you uphold your end of the contract? Or, on the other hand, what if your business is one of the lucky ones? What if your day-to-day business has not been overly impacted, but your vendors have? What if you can’t be there for your customers because a vendor or supplier hasn’t held up their end of the contract?
Lawyers and business owners have been working tirelessly in an attempt to handle contract disputes during the COVID-19 pandemic.
Here’s what you need to know.
Material Adverse Effect
The Material Adverse Effect (MAE) clause is one that allows the buyer to terminate a transaction. This is commonly used when businesses are facing a great decline in profitability. Or, it can be used when there are serious financial issues taking place.
A company may use the MAE to try to get out of a contract. Unfortunately, with COVID-19, this doesn’t always work. Disputes may arise as to the details of the clause and how each party of the contract can walk away without too big of a hit.
Currently, there are many lawsuits in the courts regarding the MAE clause.
Force Majeure
With a literal meaning of greater force, this is another common clause that many are using to get out of fulfilling the obligations of their contract. The business economy has taken a huge turn downward for many business owners. We didn’t expect for the coronavirus to have such an impact, but is it enough to get out of a contract?
Generally, this clause can free both parties from a contract when there is an event or circumstance that is outside of one’s control – that halts one party – or both – from being able to fulfill the terms of the contract.
There have been many contractual disputes that have arisen citing force majeure. The downturn in the economy has affected many businesses, but that may not be enough to get out of contractual obligations. The wording and description of the clause in one contract may differ from another.
If you truly feel as though you cannot complete your legal duties stated in the contract due to unforeseen circumstances, have an attorney review your contract to better help you determine what you can and cannot do to break it.
If you find yourself on the receiving end of a force majeure notice, you need to be prepared to ask some questions, such as:
- Does this clause pertain to the coronavirus pandemic?
- Is the pandemic the real reason why the contract obligations can’t be fulfilled?
- Are there any notice deadlines? Were they met?
Be sure to address any notices you receive within the appropriate time. Again, have an attorney review any notices promptly to protect your rights.
Ways to Handle Contracts Today
Despite what is happening in the world around us, business must still go on. So, going forward, how can you handle contracts? Here are a few tips.
Always get contracts in writing. Never rely on verbal agreements.
Use digital signatures. Believe it or not, digital signatures are just as legally-binding as regular ink signatures, thanks to the Electronic Signature Act instated two decades ago. Notarized documents may be a bit tricky. Be sure to obtain legal advice on how to handle them.
Review your past contracts. What worked? What didn’t? What has caused you headaches during the pandemic? Be sure to create new contracts that address all of these issues.
Add a Force Majeure clause. Moving forward, we now know that there are things we may encounter that we don’t expect – very real things that can have an impact on our business. As discussed above, this clause protects your business when unforeseen circumstances arise that may make it difficult for you to fulfill the terms of the contract. In years past, this was something nobody ever really gave a second thought to. Now? It’s imperative that this clause be included in contracts – and be specific.
Keep in mind that you should always contact an attorney when it comes to creating contracts. They are the ones who understand the current situation and the best way to protect yourself and your business.
The Courts
Finally, when it comes to contract disputes, be patient. Like all other businesses, the courts have been impacted by the coronavirus pandemic, too. Some were shut down for some time. Some have transitioned to an online platform for hosting hearings via video conferencing. Jury trials have halted. And an uptick in contract dispute cases has put immense pressure on the entire court system.
If possible, use attorneys to negotiate contract terms outside of the court system. This will get business running much faster – without having to wait on the courts. Of course, if an agreement cannot be made, then you may have to seek legal guidance within the court system. Just know that this could be a lengthy process – and may lead to further irreparable harm.
Final Thought
Successfully running a business can be tough. You’ve got to make sure that you are protected at all angles. This is where contracts come in. Unfortunately, things can happen that we never saw coming – like COVID-19 – and there may be disruptions in the flow of business.
Whether you are the one trying to get out of contractual obligations or someone else is trying to remove themselves from their duties, guard yourself with legal representation. Having a professional on your side means that your rights – and your business – will always be protected.
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