Before I attempt to present law that is likely to clog the court system for years, in a very short discussion, some disclaimers are necessary. First, you will hear talk over the coming months about “Force Majeure”, “impossibility of performance”, and “implied duty of good faith” in a contract. These concepts are related, but different. These ideas are tools to a lawyer, just like a hammer and nail are tools to a builder. But a builder will not build a house, even with lots of hammers and nails, unless he knows what he is doing. Nor will you make successful legal decision without a lot more tools than you get here, and without a lawyer who knows how they can likely be used.
Secondly, law means nothing outside its context in a specific contract. Third, and most important, decisions should never be made about important contracts without involving your personal business or family lawyer. No legal right exists in a vacuum; your specific contract should be presented to your lawyer, and that person should be a necessary part of any decision you make.
I will not prove how little I know about the virus by trying to discuss Covid-19, and I wish others would follow the example. But while I am not an expert on Covid, I am beginning to see the application of old laws to this new illness. For instance, I know that both the Federal and State Constitutions make it clear that the government cannot impair the rights contained in a private contract by laws passed after the date of the contract.
That means that if you owe a lease payment, a mortgage payment, or some duty set forth in a contract signed before the pandemic, there is no magic government wand that can erase the payments required by those contracts. Obviously, Congress knew that, because Congress has tried to soften the Corona blow by enacting the PPP Loan/Forgiveness Program.
The Governor can’t forgive the payments of rent, either residential or commercial. Nor can a law excuse any other private right of contract established before the date of the law. Tenants still owe their rent, and owners still owe mortgages.
Even though neither the legislature nor the Governor can waive private contract rights, a court could determine that Covid-19 is an “Act of God” that should excuse the requirements of a contract because the agreement is “impossible to perform”. But no court has ever been asked whether Covid-19 is an Act of God. No court has yet been asked whether the receipt of PPP benefits (intended to allow rent payments and salaries to be continued) should be considered in determining whether a contract is impossible to perform. If governmental benefits are to be considered, will every court consider them the same way? Isn’t it possible that a court would say that the receipt of either government benefits or of business interruption insurance benefits makes performance no longer impossible?
But, if the PPP benefits are intended to apply to only the first two months of rent, what happens if the customers don’t come back for several months or if the business has little or no inventory for many months? If Covid-19 makes non-performance of a contract excusable, how long will it remain excusable?
My last article was a caution that litigation to find answers to these contract questions is so expensive that we can litigate our clients out of business. Arbitration is not normally a fair answer, for all the reasons I have discussed in this space for years. This article proposes that honestly confronting a need to modify contractual requirements and accurately documenting any agreement to modify is often the only practical solution. Government can’t change your contract, but with mutual agreement you can, and much of the time, you should.
Those who are prevented from performing a contract because of Covid-19 should study and understand the numbers, and then seek out the other side of your contract to discuss changes. An open discussion might succeed where nothing else will. An experienced non-party mediator or lawyer can make that easier.
Business lawyers, accountants, and realtors have never been more essential. The best professionals I have ever met were both the most courteous people I’ve met, and also the most honest. While a good lawyer knows how to be confrontational, the best ones also know how not to be. No lawyer (or accountant) will represent both sides of a negotiation. But he or she can represent neither side and simply mediate, particularly if both sides have their own lawyer. A high-value contract will justify the expense, especially since litigation would be even more costly.
Whenever two people fight in a courtroom at least one and often both, will lose money. If time and emotional investment has any value at all, they both will lose every time.
I once saw a picture of two elk skeletons long ossified on a mountainside with their horns locked together from a fight that long ago each one considered necessary. I feel very sure both were very strong and masculine. Both died locked in a dispute that by nature neither could avoid, and even by supreme effort, neither could escape. How different is that from what we do in modern litigation when two sides go at each other in discovery, motions, trials, and appeals until one or both go out of business or files for bankruptcy? Then nobody gets paid and both sides have wasted valuable resources.
The business that succeeds through Covid-19 may not be the strongest and meanest. It may be the one that does not insist on being right.
Mike Chesser is President of Chesser & Barr, P.A. and Old South Land Title, Inc., both in Shalimar, Niceville and Crestview. He is Board Certified in Real Property and Local Government Law and can be reached at mike@chesserbarr.com. All articles are indexed and can be found online at www.chesserbarr.com/blog/.
This article was published in the publication of the Northwest Florida Daily News on June 7, 2020
