Force Majeure Clauses: Does the Coronavirus Pandemic provide a party grounds to get out of a contract?
As businesses across the United States measure the economic impact of the Coronavirus Pandemic on their day-to-day operations, those facing a combination of high overhead expenses (or previously scheduled, pricey corporate events) and dwindling revenue are scouring their commercial contracts for some relief. Most commercial contracts contain force majeure (“superior force”) or “Act of God” clauses, which provide grounds for delaying or excusing a party’s performance under the contract.
What is a force majeure clause?
It’s a contract clause that allocates risk between the parties when an unanticipated event renders a party’s performance impossible or impracticable. The enforcement of a force majeure clause depends on the state law applicable to the contract, and the specific language used in the clause.
Generally, a narrowly drawn force majeure clause applies only to the events identified in the clause. But clauses that contain a catch-all phrase or fail to identify specific qualifying events may still provide an opportunity for broad interpretation and application to excuse or delay performance.
Is the spread of COVID-19 a qualified force majeure event?
Probably. While it is unlikely that a court would conclude a private party caused or could control the Coronavirus Pandemic, its use as a qualifying event to enforce a force majeure clause depends on the clause’s specific terms.
Many force majeure clauses include “epidemic” or “pandemic” as qualifying events. But even without such specific terms, the Coronavirus Pandemic may qualify under other commonly used qualifying events (e.g., “industrial disturbances,” “inability to obtain materials,” “acts of public authorities,” or “other causes not within a party’s control”) due to federal and state government-imposed travel bans and “shelter in place” orders.
What if a contract does not contain a force majeure clause?
A party may have other remedies to excuse or delay their performance under the contract. If the contract does not contain a force majeure clause, or if the force majeure clause does not expressly apply to the Coronavirus Pandemic, the equitable doctrines of “commercial impracticability,” “impossibility,” or “frustration of purpose” may apply. These fact-dependent doctrines may also excuse or delay the performance of a party under a contract.
What should I do to protect against or enforce Force Majeure clauses?
- Review your contract to identify whether it contains a force majeure clause and, if so, the events which trigger its application.
- If you’re seeking to enforce the force majeure clause, confirm your contractual obligation to notify the other party or parties of your intent to do so.
- Consider amending the force majeure clauses in your contracts to include modern risks, including epidemics and pandemics.
- Seek legal advice regarding the application, negotiation, enforcement, or defense against a force majeure
***This content is informational only and does not constitute legal or professional advice. Please consult with MPBG if you have questions relating to this content.
For more information contact:
Devin Sreecharana is a Shareholder in MPBG’s Commercial Litigation Practice Group. Devin frequently represents local and national corporations, financial institutions, commercial landlords and tenants, and individuals with the negotiation, drafting, and enforcement of commercial contracts. He can be reached at 602.774.3568 or firstname.lastname@example.org.
Taylor Gustafson is an Associate in MPBG’s Corporate and M&A Practice Groups. Taylor represents local and national businesses in their formation, governance, buy/sell issues, general corporate matters, and the negotiation and drafting of commercial contracts. He can be reached at 602.252.8356 or email@example.com
MPBG provides its clients with a broad range of legal services related to commercial activities, including: commercial lease negotiation and enforcement; commercial real estate transactions; loan work outs and enforcement; forbearance agreements; liquidation of secured collateral; real and personal property foreclosures; Chapter 11 bankruptcy reorganizations; equipment leases; secured loan financing; insolvency; and, receiverships.
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