Impact of the Executive Order (Legal Deadlines) on Purchase Agreements and Closing

 Baker, Donelson, Bearman, Caldwell & Berkowitz, PC

450 Laurel Street, 21st Floor, Baton Rouge, Louisiana 70801

Short Answer: No, it does not appear to affect legal documents such as purchase agreements.

Governor Edward's Order dated March 16, 2020, Proclamation JBE 2020-30 includes suspension of certain legal deadlines. In suspending all deadlines in “legal proceedings... in all courts, administrative agencies, and boards...”, the order does not appear to specifically encompass closing deadlines contained in private contracts between private parties, such as purchase agreements. 

Louisiana citizens may contract with one another, about all subjects which the law does not prohibit. Timelines and closing deadlines contained in purchase agreements represent terms of contracts which are freely negotiable between the parties to such contracts. The failure of parties to perform within such timeframes required in the contract may result in a default of the purchase agreement[2].  

Short Answer: No, but BUYERS and SELLERS may want to consider an amendment to the Louisiana Residential Agreement to Buy or Sell. A sample amendment is provided. This sample form is not a mandatory form.

The Louisiana Residential Agreement to Buy or Sale (“Purchase Agreement”) form does not contain an Act of God or Fortuitous Event Clause which might provide an automatic extension. In the absence of such a provision, it is possible that the Purchase Agreement could be deemed in default upon the expiration of the deadline for closing, despite the occurrence of such disaster. Generally, there is no Louisiana law that specifically grants purchasers in private contracts an automatic extension of time to perform such obligations in the event of a pandemic or natural disaster. However, the parties may certainly agree in writing to extensions of deadlines in the Purchase Agreement. Also, additional government Orders or the concepts of equity may impact the granting of additional time to complete a transaction as further detailed below.   

If the BUYER and SELLER are agreeable, an amendment of the Purchase Agreement could be signed. A sample amendment with several options BUYERS and SELLERS can consider is attached. An annotated version with explanation on using the form is also attached.

Short Answer: It is something that at the time the contract was made could not reasonably be foreseen.

Some contracts contain provisions specifying how the contract is to be completed in the event that an “Act of God” or fortuitous event, such as war, natural disasters or pandemics occur, which prohibits the parties from completing the transaction or the obligations pursuant to the contract. Louisiana Civil Code Article 1875 specifically defines a "fortuitous event" as "one that, at the time the contract was made, could not have been reasonably foreseen." These clauses in contracts are sometimes referred to as “force majeure” provisions. It is important to remember that each contract’s “force majeure” provision can be different and may be applied differently. Reviewing the precise language of the “force majeure” provision is critical to determining whether it excuses or delays performance of the contract.  

Louisiana case law has recognized war, floods, hurricanes, and even gas explosions as fortuitous events. It has also recognized "disease" as a fortuitous event as well.[3] While a "pandemic" has not been explicitly stated to be a "fortuitous event" in any Louisiana case, it stands to reason the impact of Covid-19 and accompanying governmental orders will rise to that level.

Short Answer: The pandemic may not automatically terminate or extend deadlines in any contracts existing before the pandemic began in Louisiana, absent specific provisions in a contract to the contrary.

Louisiana Civil Code Article 1873 provides:

• An obligor (such as BUYER or SELLER) is not liable for his failure to perform when it is caused by a fortuitous event that makes performance impossible.
• An obligor is, however, liable for his failure to perform when he has assumed the risk of such a fortuitous event
• An obligor is liable also when the fortuitous event occurred after he has been put in default.
• An obligor is likewise liable when the fortuitous event that caused his failure to perform has been preceded by his fault, without which the failure would not have occurred.

Impossibility of performance is a rare occurrence even when a fortuitous event has occurred. A fortuitous event prevents obligor from performing his or her obligation in a manner contemplated at the time of contracting, obligor must pursue reasonable alternatives to render performance in a different manner before obligor can take advantage of the defense of impossibility.[4] Therefore, the pandemic should not automatically terminate any existing contracts, absent specific provisions in a contract to the contrary.

One such difficulty that may surface is a party becoming too ill to attend a closing or execute documents. As in other cases where a person is or may become indisposed, one solution would be to have powers of attorney in place ahead of time. 

5. WILL THE PANDEMIC, IF IT TEMPORARILY PREVENTS THE PERFORMANCE OF CONTRACT ONLY TEMPORARILY EXTEND THE DEADLINES IN THE CONTRACT?  

Short Answer: Maybe, it depends on the facts and the circumstances in the parish at the time.

The Civil Code does not directly address when a “fortuitous events” suspends the performance of contracts, but the Attorney General, following Hurricanes Katrina and Rita, issued an opinion to the effect that:

"As a general rule when fortuitous events … prevent timely performance of an obligation but do not make that performance impossible in an absolute sense, performance may be suspended for as long as the fortuitous event prevents it; an obligee must give reasonable written notice of the intention to demand performance after the fortuitous event to trigger abatement of the suspensive period."[5]  

Thus, the argument is that the recent pandemic constitutes a fortuitous event sufficient to temporarily suspend a buyer’s performance under the terms of an otherwise valid purchase agreement. Upon the termination of the impediment, it is arguable the law would require the obligation to be satisfied as originally contemplated by the parties. This analysis and outcome of the delay requested will depend upon the facts of each transaction. Some BUYERS and SELLERS may be able to close in some Parishes. In other Parishes, if for example the Clerk of Court is closed for an extended period of time, this may not be possible.  

Further, Louisiana law contains provisions such as Louisiana Civil Code Articles 2054 and 2055 that address “equity” in contracts, which is based on the principles “that no one is allowed to enrich himself unjustly at the expense of another.” These types of principles might also be applied by a Court in determining whether the performance of a contract is due, suspended, or impossible.