The transmission of the novel coronavirus or COVID-19 in communities across the world and the United States is starting to cause disruptions in the way business is conducted. You can not longer visit places like Italy, China, and South Korea, and nationally, it is not advisable to go to Seattle, Washington for a vacation.
Disruptions on the supply chain of many companies, shortages of products are other ways this virus is impacting global and local economies. So much so, that the stock market is reacting accordingly.
But COVID19 is not the only event that had affected the economy. Many natural and man-made disasters bring considerable economic disruptions. Throughout history, wars, hurricanes, economic disputes, pandemics bring their share of economic uncertainty.
From a legal standpoint, one of the earliest effects is in the cancellations of contracts. On March 6th, 2020, the South by Southwest Festival in Austin Texas (SXSW) was canceled, bringing a blow to local businesses among them restaurants, hotels, sound equipment rental, etc.
Most of the contracts have a clause called force majeure or acts of God. Force majeure is a provision that “excuses a party from not performing its contractual obligations that become impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled”.
Among those events are floods, earthquakes, terrorist attacks, wars, and of course epidemics or pandemics.
However, the devil is in the details. Big companies write those provisions to lessen the impact of any loss and pass it on to, for example, supplier or smaller businesses.
This COVID-19 crisis will bring special challenges to companies due to cancellations, reduced demand, disputes on insurance claims, lack of cash flow, disputes among partners, and more.
It is prudent for you to revise the contracts you are involved in. Some local governments may implement changes in the way business is conducted under this stress, like a reprieve and economic incentives. In addition, each legal system and jurisdiction(s) are likely to provide a different answer to a breach of contract situation.
Stay tuned to our blog commentary about the latest events and the intersections between news and the law.
If you have questions, want to review or update your contracts, call us for a consultation with Attorney Marcos E. Garciaacosta at (480) 324-6379.