IDA Universal

I DA U N I V E R S A L M ay -J u n e 2 0 2 0 13 LEGAL LINE Robert W. McIntyre IDA Association Legal Counsel Continued on page 44 I don't have to remind anyone that some changes have occurred since the last article. In many ways, no "rules" exist for what is happening today and may continue through the end of the year, at least. Despite the sugar high of immediate credit easing, fundamental problems will continue for years to come. ose who are aware and prepared will survive; those who are not, will not. I also thought that this would be a good time to look at some legal fundamentals, as we all navigate through the maze of contract defaults, banking and lending upheavals and the inevitable insolvencies and bankruptcies. Let's look at some common scenarios for these new world problems. First, what is a "breach" or "default" of a contract in today's circumstances? Whether it's in your contracts, purchase orders, invoices or not, there are two core principles for contracts, whether they are based on English or European law. e fi rst is a fundamental duty between contracting parties to act in good faith. is means that simply walking away from obligations or partially honoring a contract is not acceptable and can be litigated. is could mean that a price can't be pressured down or up or goods not deliv- ered or accepted because of economic/business uncertainty with a counterparty. Let's put this in context. If you don't want to take a shipment from a supplier because you are Old Words, New Meanings. concerned you can't sell it at a profi t, or you simply don't want to commit cash or credit, that's not a valid legal excuse. e mirror image applies to your customers as well. What should you do? e best practice is to honor the commit- ment. is storm will not last forever. On the other hand, your fi rst obligation is to preserve your business. If this means conserving cash and credit, you need to be candid with your counterparties, and vice versa, to work out a possible solution. When economies do recover, lead times for all manufacturing will be a whole new world, with steel shortages, parts short- ages, and all sorts of new and unforeseen problems. Does this suggest stocking for a recovery and playing the time game, or working with customers and suppliers to coordinate reduced schedules and ramp-up scenarios? e next conundrum is the concept of "force majure," which in both contract languages – usages and legal principles – simply means that if circum- stances present themselves that are out of the control of either or both counterparties, one and both can be excused from performing. Usual force majure language includes wars, insurrections, shortage of labor or materials, acts of God and so on. I would not hesitate to advise looking at these types of terms and condi- tions or present circumstances for guidance, but they tend to be more of a useful shield than an eff ective sword. Also, force majure also presumes good faith on both sides. It is generally accepted as a temporary measure, not a fi nal solution for one counterparty to walk away altogether. However, if fi lling your customer's orders, for example, requires your suppliers to honor their commitments to you, and they simply disappear or can't perform, you do have an out. But again, good faith suggests that you need to genuinely look for a "cover" or replacement source, but not at a loss. e core problem with all of this "legal" principle discus- sion is that the worldwide health crisis will be used and abused by anyone who wants to get an edge at the expense of a counterparty. And, the patchwork decisions in the U.S. and overseas – combined with the uncertainty of just about anything – make rational legal arguments to enforce obliga- tions a very new and completely uncharted territory. Additionally, "credit" can now mean nothing more than the government du jour appetite for printing money and deciding who would serve government's o en political ends best by a

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