The Coronavirus (COVID-19) pandemic may allow some businesses to avoid complying with certain contracts if the pandemic or resulting governmental regulation creates a situation where the business cannot meet its obligations. Of course, the specific language of the contract is key.
What is a “Force Majeure” clause?
A force majeure clause is a contractual provision that excuses performance under the contract when extraordinary circumstances beyond a party’s control prevent one or both of the parties from fulfilling their obligations. Common examples of events that trigger force majeure clauses are wars, riots, natural disasters, and “acts of God.”
Force majeure clauses are governed and regulated by different laws, including the Uniform Commercial Code, at UCC § 2-615. Under 2-615, a seller is excused from performing if performance has been made “impracticable” by the occurrence of an event that neither party anticipated at the time the contract was made. There are also similar defenses to breach of contract claims under the common law, including “impossibility” and “frustration of purpose,” both of which are based on the concept of excusing performance due to unanticipated hardships. Many contracts will also have their own, custom provisions addressing when a party’s failure to perform may be excused.
Force majeure clauses are often invoked when a company is sued for failing to perform its end of a contract, such as by failing to deliver goods or provide a service. The party that failed to perform will generally cite an event such as a natural disaster or other disruptive force and claim that it was unforeseeable and prevented them from performing, thus triggering the force majeure clause and excusing them from performing.
How is a Force Majeure clause triggered?
Parties to a breach of contract lawsuit involving a force majeure clause will almost certainly disagree on whether the clause has been triggered, as the party seeking damages will likely argue that the disruptive events in question where either foreseeable by the parties or that the event did not trigger the force majeure clause.
Many contracts will contain specific language stating when an incident triggers a force majeure clause and excuses performance. Based on the unique nature of their operations, certain industries have specific force majeure provisions in their contracts that explicitly define when force majeure can be invoked and under what conditions.
There are also several requirements that must be met before a force majeure clause can be triggered or invoked, such as providing written and timely notice and documenting the triggering incident’s effect on your business. In the context of the coronavirus pandemic, parties may have to show how the pandemic directly interfered with their ability to keep performing by the terms of the contract.
Does the Coronavirus pandemic constitute a Force Majeure incident?
The coronavirus outbreak and the resulting government regulations may constitute a “force majeure” incident that excuses a party’s failure to perform. There are a variety of ways that contractual parties will try to use COVID-19 as a “force majeure” excusing their failure to perform a contract or as a reason to terminate the contract. These include:
- A failure for a supplier to provide goods to a buyer based on a reduced supply or disruptions to the chain of supply;
- A buyer declining to continue accepting goods from a supplier based on a reduced demand given social distancing guidelines and stay-at-home orders;
- Businesses unable to perform their contractual obligations due to local, state, or federal government orders shutting down their operations;
- Businesses unable to perform their contractual obligation because their source of labor has been affected by the coronavirus;
- Buyers and suppliers unable to perform due to disproportionate price increases.
Whether this pandemic constitutes a force majeure incident depends on several factors. Was the coronavirus’s impact foreseeable to the parties after the virus began spreading in late 2019? Is the pandemic the actual cause of the business’s failure to perform, or was the business likely to breach the contract regardless? Could the breaching party have found an alternative way to perform the contract or is performance under these circumstances impossible? Does the contract provide definitions or examples of what constitutes force majeure, and is the pandemic similar to those definitions?
A force majeure clause must also be read in the broader context of the contract, as other language in the contract might narrow or expand the definition of what constitutes “force majeure.” For example, many contracts excuse a failure to perform based on a “civil authority,” such as a government regulation or orders, frustrating the parties’ ability to perform their obligations. Some contracts also address whether disruptions due to natural disasters or pandemics excuse performance. With or without this additional language, however, the COVID-19 is an unprecedented global health crisis, and no one can predict, yet, how it will affect breach of contracts claims.
What do I do if I am a party to a breach of contract claim where the force majeure clause has been invoked?
In some cases, it makes sense to claim that the pandemic prevents you from performing your end of the bargain. In others, however, the coronavirus outbreak might be just an excuse to get out of a contract. That’s why it’s important to pay close attention to the language of the contract to see if it is the kind of contract where the COVID-19 pandemic can trigger the force majeure clause.
Our experienced trial attorneys are ready to look at the language of your contract and help you determine whether the force majeure clause was triggered and how you can win your breach of contract case. Contact our law firm now and we will let you know if we can help.
