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I can’t fulfill my contract. What now?

In times of economic uncertainty, some contracts inevitably go unfulfilled. For example, recent lockdowns or closed borders may prevented you from fulfilling your contractual obligations. Obviously problematic, but not necessarily an emergency.

Force majeure

You may have a term in your contract called “force majeure” or “act of god.” This basically means that something unexpected and unpredictable happened to prevent fulfillment of the contract. If you have a force majeure clause in your contracts, you may have a defense to a breach of contract claim.

It depends, of course, on what that clause expressly says. For example, it may excuse or allow delayed performance based on fire, flood, acts of terrorism, or actions or omissions of a governmental entity. A state lockdown or shelter-in-place order would reasonably qualify as a governmental  act.

Force majeure may completely cancel your contract, subject to restitution for any monies already spent. Or, if the parties prefer and the clause allows, it may merely delay the fulfillment of the contract.

The duty to mitigate damages

While breach of contract can result in a lawsuit, such a lawsuit is not a free-for-all. You may fear that the non-breaching party could come after you for significant damages, but your losses should be foreseeable. Moreover, non-breaching parties cannot simply allow preventable damages to accrue—they have a duty to act reasonably and minimize damages.

Being reasonable is generally required

When it comes to breach of contract, courts have several available remedies. Most common is that the breaching party will owe the non-breaching party damages. These damages are meant to make the non-breaching party whole, meaning that they should have the benefit of their bargain, to the extent possible.

Before any lawsuit, you will have an opportunity to negotiate with the non-breaching party to see if you can agree on reasonable damages. Courts look askance at people who refuse to even try to settle out of court, and most require the parties to negotiate and/or mediate their dispute.

Besides damages, the court could also order cancellation of the contract and restitution for monies already expended. Or, the court could order specific performance, meaning that the court would order you to perform the contract.

If that happens, you would generally be given a reasonable amount of time to perform.

Negotiate a resolution

If circumstances beyond your control have made it temporarily impossible for you to perform contractual obligations, do not panic. Talk to an attorney who handles business litigation. If you can perform the contract after a delay, there is a good chance the non-breaching party will agree to that delay. With an understanding of the law and a bit of negotiation, you should be able to get your contract fulfilled and end the dispute.