COVID-19 & FORCE MAJEURE -CAN IT EXCUSE PERFORMANCE OF A CONTRACT?
The COVID-19 pandemic has affected businesses' ability to maintain and fulfill their contractual obligations. From supply chains and distribution channels to human labor, the pandemic has caused inevitable disruptions in an increasingly interdependent global economy. And as COVID-19 restrictions and their effects continue throughout the United States during this current wave of infections and variants, business interests in force majeure clauses continue to rise.
What is Force Majeure?
Force majeure or acts of God clauses are a contractual defense that permits a party under a particular set of circumstances to cancel or discontinue the execution of its contractual obligations. A force majeure event is decided on a case-by-case basis, relying upon the terms of the contract involved and other related facts.
Can the COVID-19 Pandemic Qualify as a Force Majeure Event?
The California Supreme Court has defined a force majeure event as “such an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise of prudence, diligence, and care.” Pacific Vegetable Oil Corp. v. CST, Ltd., 29 Cal.2d 228, 238 (Cal. 1946).
In other words, California courts determine whether an insuperable force affected performance and could not have been prevented even in the exercise of due care.
Force Majeure Clauses Within an Existing Contract
The COVID-19 pandemic may be considered an unforeseeable event and trigger a force majeure clause within an existing contract. If the pandemic is expressly covered in a force majeure clause, it may suspend or excuse the performance of a contract.
The language employed in force majeure clauses varies. Therefore, one concerned about the effects of COVID-19 on existing contracts must read the language carefully to determine the extent to which forces involving the pandemic are expressly covered.
Even if an existing contract does not specifically list “pandemics” as a triggering event for a force majeure clause, a party may still be excused by an event involving the pandemic. A court may still apply “impracticability” and or “impossibility” defenses to excuse a party’s non-performance of its obligations in a contract – particularly if the parties could not have foreseen the unmentioned event when they made the contract. See, e.g., Autry v. Republic Productions, Inc., 30 Cal. 2d 144, 149 (1947) Nevertheless, expect the other party to contemplate litigation as they object to the force majeure defense.
When A Contract Does NOT Have A Force Majeure Clause
When a contract does not mention force majeure, a court may still excuse an affected party’s performance under statutory and/or common law based upon an event's predictability. California Civil Code § 1511 (2) states explicitly that a party’s contractual obligations are excused, “when it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States unless the parties have expressly agreed to the contrary.”
In other words, the non-performance of a party would not be excused if the incident preventing performance was anticipated or if it was a foreseeable risk.
We are still in the early days of COVID-19 litigation. As cases move through the courts, interested parties will gain a clearer picture of the legal landscape regarding the pandemic in relation to force majeure clauses.
The applicability of force majeure clauses will vary on a case-by-case basis. If you have questions or would like a complimentary consultation on a specific matter, please feel free to contact us at email@example.com or by phone at (714) 772-7400. Our legal team is available to assist you and your business further.