Op-Ed: Contracts in times of pandemic
The COVID-19 pandemic has brought disorientation and confusion on all fronts, and one of them is the business legal arena, and what’s applicable and what isn’t in a situation as unique as this.
From huge business transactions to everyday ordinary ones, everything seems unclear. For example, in recent days we have heard complaints from many consumers about many of their service providers because they continue to charge despite not operating or while providing the service in a limited way. The companies, for their part, argue that people have to continue paying because they signed a contract.
First, particularly in business, you must understand what a contract is: the law between the parties, and you can include as many clauses as the parties agree to as long as they are not contrary to law, morality or public order.
As a general rule, and as most people understand it, the parties to a contract go into a negotiation where they stipulate agreements between them. But beware, there are also contracts of adhesion (or pre-formulated standard contract), where one party is the one who unilaterally establishes the conditions of the contract, and the other party decides to accept them; this without any type of negotiation or collaboration. Usually, certain service companies (telephony, gym memberships, or other standardized services, to name a few examples) use these kinds of contracts.
Similarly, in these weeks we have frequently heard the terms of “force majeure” or “fortuitous event” (in some cases “acts of God”) to define unexpected circumstances and refer to an event that cannot be prevented or resisted, such as a hurricane, flood, fire, or the pandemic we are experiencing, among others. From a legal point of view, these concepts could exempt you from liability on the grounds that the event cannot be anticipated.
But even if any event is considered “force majeure” it does not necessarily imply that you will be exempt from the fulfillment of your obligation as many people are discovering these days. The reason for this is that on many occasions, contracts specifically provide otherwise.
Many contracts that are frequently signed in the ordinary course of business include clauses where the party that has to provide a service will not have the obligation to offer it by reason of “force majeure” or “fortuitous event.” However, the same contract provides that the debtor will have to continue paying for the service despite the fact that they are not receiving it.
Hence the importance of reading carefully before when signing and making sure you understand what your obligations are to the other party, in any kind of business transaction. The public often fails to read the entire document, including “the fine print,” as it is known. Those small letters are important.
Undoubtedly, the COVID-19 pandemic is a situation that, at the beginning of the year, our society, in general, did not consider as a threat that would touch us so closely. But remember that different pandemics (albeit on a smaller scale) have occurred in recent times. Should this event be considered a “force majeure?”
At the end of the day, if there’s a dispute that the parts cannot overcome, the courts will be the ones analyzing the interpretation of each contract, the probability of the event, its unusual nature and the measures to be taken to avoid any possible damage, among other aspects.
If you want to avoid this, always read the entirety of your contracts, and ask for legal guidance.