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Force Majeure Clauses Amid the COVID-19 Outbreak
Classes, sporting events, church services, and other public gatherings across the country are being curtailed or cancelled as the number of COVID-19 cases in the United States continues to rise. Health and government officials expect the virus to continue to spread and are seeking the public’s assistance to help manage it. As a result, employers in nearly every industry are implementing measures to reduce the spread of the disease which, in some instances, means bringing the supply chain of goods and services to a screeching halt. While the ultimate impact and duration of the outbreak remains to be seen, one thing is certain: a spike in breach of contract claims around the country is imminent.
COVID-19, a coronavirus, presents a textbook contract law case for force majeure. The term “force majeure” translates from French as a “superior force,” and, in legal terms, means an event or effect that can be neither anticipated nor controlled; an act of God. It is common practice for attorneys to include force majeure clauses within the boilerplate sections of written contracts. Such clauses allocate risk between the parties if performance becomes inadvisable, commercially impracticable, illegal or impossible due to an unforeseen event. For example:
Force Majeure. Seller shall not be responsible for its failure to perform under this Agreement if such failure results from causes beyond its reasonable control, including, but not limited to: acts of God; strikes or other labor disturbances; equipment failure; power failure; inability to obtain suitable supplies, material, or parts; war; acts of terrorism; epidemics; floods; fires; accidents or other similar events, the non-occurrence of which was a basic assumption at time the Agreement was made.
While such clauses aim to clarify the parties’ liabilities amid unforeseen catastrophes, force majeure clauses do not always settle the matter. Some courts have narrowly interpreted clauses such as the one written above as excusing performance only in limited situations and in consideration of surrounding factors. For example, the clause above includes “epidemic” as a specified force majeure event. Buyer, the opposing party, may argue that while COVID-19 qualifies as an “epidemic,” performance should not be excused due to COVID-19’s possible (and not actual) impact to seller’s US-based business. A court is more likely, however, to sympathize with the non-performing seller if seller’s business is headquartered in China.
What if your contract does not contain a force majeure clause? Are you up corona creek without a paddle? No. When an unforeseen, supervening event fundamentally alters the nature of the parties’ agreement, which is silent as to such circumstances, two gap-filler legal doctrines may excuse a party’s non-performance: (1) impossibility/impracticability, and (2) frustration of purpose.
Please do not hesitate to contact us if you would like to learn more about how your contractual obligations may be affected during this unforeseen, challenging time.
At the date of publication the above information was correct. It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.
The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.