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Force Majeure and Business Contracts

April 2, 2020
April 2, 2020
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There is much discussion of force majeure clauses in contracts. Roughly translated, it means “superior force”, suggesting that powerful forces are impacting the contractual relationship.  At a high-level, a force majeure clause is a provision in a contract which may excuse a party from performing their obligations under a contract. It applies to virtually any contract including supply contracts, leases, construction contracts, and maintenance agreements.

First and foremost, you should review all contracts to determine whether a force majeure clause is included. It is not automatically contained in every contract and it is important to know of your obligations to other parties and their obligations to you.

Even if the contract contains a force majeure provision, courts are hesitant to excuse contractual performance unless;

  • The event was outside the reasonable control of the breaching party
  • The event was not reasonably foreseeable by the parties
  • The relevant event materially affects the ability of the party to perform
  • The party took all responsible steps to provide notice and mitigate the relevant against the relevant event and its consequence

Put simply, the mere presence of the clause is not the end of the analysis.

The Contract does not include a force majeure clause

If the contract does not include a force majeure provision, there may be other defenses available to the non-performing party. These include the legal principles of impossibility, impracticability, or frustration of purpose. Like force majeure clauses, these are not straightforward and continue to challenge legal professionals across the country. At a high-level, contract performance may be excused under a limited range of unique circumstances. However, it is unclear at this point whether the COVID-19 pandemic will serve to trigger either the force majeure clause or the other common law offenses.

What if someone refuses to perform under my contract and claims a force majeure?

Most breach of contract claims allow the aggrieved party to pursue multiple remedies including money damages or specific performance. Considering the unique circumstances of the Covid-19 virus, one would expect that many suppliers or parties to a contract would seek to be excused from performance based upon the pandemic and its fallout. Should one of your business partners discuss non-performance or in fact breach your contract, you should review the contract to determine if the party has an excuse for non-performance under a force majeure clause. The mere fact that a contract becomes difficult to perform, or is unprofitable for that party, will not excuse performance.

What if I cannot perform my contractual obligations due to the Covid-19?

The above analysis applies equally to your non-performance or expected non-performance. First and foremost, the contract should be reviewed. Secondarily, the terms of the contract and the surrounding circumstances should be analyzed to determine if other common law excuses for non-performance can be identified.

The analysis of contracts as impacted by Covid-19 is not a simple matter and it evolves with each passing day. Rather than wait for a contract breach, we suggest the immediate review of contracts to determine what options are available as either the breaching party or the aggrieved party.