COVID-19 And Contract Enforcement

• Published date: 17 June 2021
• Subject Matter: Coronavirus (COVID-19), Government Measures, Litigation, Contracts and Force Majeure
• Law Firm: Pavia & Harcourt
• Author: Ihsan Dogramaci

There has been much discussion of the legal issues raised by the pandemic when contractual obligations can no longer be met. This memorandum notes some of those issues.

Waiver

Contracts are voluntary arrangements. Likewise, enforcement of a contract is a voluntary act. One may decide not to insist on strict compliance. This can raise questions as to whether rights have been waived, and, if so, to what extent. Contract rights can be waived "fully or only partially," depending on the circumstances.¹

A decision to forbear from the enforcement of a contract right can be a valuable concession that serves as the basis of a new agreement, but ideally the new agreement will be drafted with care. Otherwise the decision can easily turn into a dispute. For waiver of contract rights is an issue of intent,² and questions of intent are often difficult prove. "[T]he intent to waive is usually a question of fact,"³ therefore any failure to make one's intention explicit and unambiguous can lead to the worst sort of dispute: a protracted one.

Contract provisions designed to avoid disputes over potential waivers and modifications of the contract may fail to serve their purpose. For example, many written contracts contain a provision stating that modifications of the contract are ineffective unless the modifications are made in writing. New York has a statute requiring such provisions be respected.⁴ But New York's highest court has held that two circumstances can make this statute's protection against oral modifications inapplicable. The first is when "the oral agreement to modify has in fact been acted upon to completion"; the second is when "there is partial performance" that is "unequivocally referable to the oral modification."⁵ Furthermore, even if neither of those two exceptions to the statute apply, a party may still be barred from enforcing the original, written contract if a court finds that enforcing the unmodified contract would be unfair: "Once a party to a written agreement has induced another's significant and substantial reliance upon an oral modification, the first party may be estopped from invoking the statute to bar proof of that oral modification."⁶

Although events are unfolding quickly, parties to commercial contracts are urged to take the time to make their intentions in modifying their written contracts as clear as possible.

The Defense of Impossibility

Under New York common law, sometimes a party is relieved from its contractual obligations because...