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The Force Majeure Clause: Your Contract Law Coronavirus Escape Hatch

March 21, 2020

Posted in Business Start Ups, Civil Litigation, Contract, COVID-19, Uncategorized

There are many benefits to having a written contract instead of an oral, handshake deal. You could spread a viral infection with a handshake. You don’t think through all the issues that may come up, like what to do in an emergency that may make complying with the agreement very difficult or impossible. It also makes legal enforcement of the deal more complicated.

Force majeure, in case it’s been a long time since your last French class, means superior force. If you’re smart enough to have a formal, written contract with another party (customer, supplier, contractor, joint venture partner, etc.), it should contain (and my clients’ contracts have one) a force majeure clause.

The goal is to, as much as possible, keep a contract alive in a situation where the parties, through no fault of their own, cannot perform their contractual obligations because of events beyond their control. The clause allows the parties to agree that if certain circumstances happen, assuming the parties are trying in good faith, that they will excuse a party’s non-performance of its contractual obligations, preventing the contract from becoming frustrated.

The scope of the clause depends on how it’s constructed and written. Generally, it cover events which:

  • Are beyond the reasonable control of the party
  • Result in the party’s inability to perform or a delay in its performance
  • Are not the result of fault or negligence of the party
  • Couldn’t reasonably have been expected to prevent, avoid, or overcome the event by exercising reasonable efforts

These events are usually considered acts of God (circumstances beyond human control), extreme weather, riots, war or invasion, government or regulatory action (like a declaration of emergency) including strikes, an act of terrorism, or the imposition of an embargo. Depending on the clause’s language, a potentially life-threatening, contagious viral pandemic and its resulting government orders to try to prevent its spread (including closing or limiting a business’ operation) should be a force majeure event.

Before informing the other party, you need to declare a force majeure event, look at the language, and contact my office so we can discuss your options. The other party may want to delay or stop its performance and inform you there’s a force majeure event, potentially harming your business. In that event, do the same. Read the contract and give me a call.

Improperly declaring a force majeure event could cause the other party to repudiate the contract and may give it grounds to seek damages. It may claim the current situation doesn’t fall into the clause, and walking away from contractual performance breaches the contract.

Issues to consider are:

  • Does your force majeure clause include a health emergency, pandemic or epidemic as a force majeure event? Are mandatory office closures, or a government order limiting operations, and travel bans government or regulatory actions outside the parties’ control?
  • Given past epidemics and medical emergencies, is the current situation reasonably foreseeable and its effects reasonably preventable, avoided or overcome? Could the party have limited the effects of the pandemic and resulting government orders before they happened?
  • Parties have a duty to take reasonable actions to mitigate, or lessen, the harm done by a force majeure event. This could be spending money, rescheduling commitments, and minimizing delays. Can the party show it took reasonable steps to mitigate or prevent the effects of the force majeure event?

If you are in this situation, call us now for a COVID-19 Strategy Session, and let’s talk about how we can help you to run your business without worrying about the underlying legal consequences. Call us now at (714) 415-2007 or reserve your spot by clicking the link:  So reserve your spot now!