Covid-19 Legal Help
Our law firm’s experience can help businesses limit their losses to avoid broader challenges due to Covid-19
Contract Defenses & Help with Covid-19
Mitigation of Damages
A lender or creditor must take steps to mitigate its damages after a breach. It might be able to recoup some of the money owed while it tries resolve the situation, but is required to offset its losses through other efforts. For example, landlords have to try and re-rent space. Lenders holding collateral must try to maximize value by using an auction.
Many commercial contracts contain a force majeure provision that excuses performance due to an act of God. It may be that a health order closing businesses due to Covid-19 triggers such a provision. If the state makes it illegal to conduct business due to a “shelter in place” health order, this might be sufficient to excuse performance. This kind of provision should be in the contract.
This legal concept applies to events that neither party could have contemplated within their agreement. It may also be useful to argue "frustration" or "impracticality." There may be an argument that Covid-19 was unforeseen by either party in entering the contract, so either party may be excused from it. This argument may get more attention if the contract was recently entered.
Basics of Contract and Breach
A contract is formed when one party agrees to pay money in exchange for a good or service.
If either side fails to perform, they are in breach of contract. For example, if the side that promises to pay the money does not pay, that side may be in breach of the agreement. Similarly, if the side that agrees to provide the good or service cannot do so, then that side may be in breach of the contract. Contract law provides for some measure of damages to the side that was harmed. It also provides some mechanisms to avoid performing while avoid damages normally associated with a breach.
Concept of Damages
The damages available for breach of contract (legal complexities aside) usually boil down to lost profit. It usually is not the full value of the sale. For example, if you agree to buy 10 widgets at a cost of $5 each ($50), and then refuse the package of the widgets when the mailman arrives, your liability to the sender is not $50. Since the package was returned and you did not get the benefit of the widgets, the seller cannot keep the widgets and also sue you for $50. Instead, the manufacturer can sue you for its lost profit margin. If that was $1 per widget, then the manufacturer could sue you for $10 (plus probably the cost of postage). However, in the event the widgets are in high demand (say, face masks) and the manufacturer is able to resell the widgets for $6 each, then it cannot sue you for damages as it has none. Things can get a little more complicated if the manufacturer has a warehouse full of widgets it cannot sell, but this is a simple example of a legal concept that can help a business breach a contract while avoiding damages.
Countries have reported cases of Covid-19
Small business owners concerned about the ability to survive with less than 3 months shut down.
Stock market high to low in first 30 days.
Small business owners confident in their contingency plans.