All contracts, unless scribbled on a bar napkin, contain myriad, boilerplate terms that are rarely read by most parties, much less cited in a dispute. However, in the current state of uncertainty, the regularly overlooked force majeure clause is being discussed almost as often as which South Bay restaurant has the best take out cocktails.
A force majeure clause is intended to protect all parties to the agreement when an unforeseeable circumstance arises which prevents one or all parties from being able to abide by the terms of the agreement. There is no one size fits all force majeure clause since it is usually industry and contract specific.
Until recently the force majeure clause was hardly ever implicated and rarely a contested or heavily negotiated clause. However, since the World Health Organization declared COVID-19 a pandemic, everything from essential organizations such as schools and court houses to more indulgent businesses such as tanning salons and cupcake shops are closing their doors and finding ways to minimize expenses until restrictions are lifted. One of the first concerns is existing contractual obligations that can no longer be met, resulting in businesses seeking interpretation of the force majeure clause.
Generally, this is exactly the situation that a force majeure clause is intended to protect against. However, very few contracts actually contemplate or identify a “pandemic” as a reason to excuse nonperformance of an agreement.
Despite the fact that the purpose of the clause itself is to protect the parties to an agreement from unthinkable occurrences that they have no control over, colloquially referred to as an “act of God,” many courts will only allow the clause to be enforced if the contract explicitly contemplates the event at issue. For instance, if the force majeure clause states that the contract will be terminated if a fire destroys the building, a tornado destroying the building would not qualify as a triggering event under the force majeure clause. That being said, California courts are generally much more liberal when interpreting the intent of the clause.
If the agreement does not contemplate a pandemic, which very few of them do; or if the agreement is completely devoid of a force majeure clause, that is not the end of the road. As mentioned above, California generally allows for a broader interpretation of the force majeure clause. Further, if the contract does not have a force majeure clause there are still a variety of legal doctrines that will allow performance to be excused for either a brief period of time or indefinitely, depending on the circumstances surrounding the agreement.
A force majeure clause is intended to protect all parties to the agreement when an unforeseeable circumstance arises which prevents one or all parties from being able to abide by the terms of the agreement. There is no one size fits all force majeure clause since it is usually industry and contract specific.
Also keep in mind that courts will not look kindly on those seeing this as an opportunity to terminate unfavorable agreements. Therefore, if all parties can adhere to the terms of agreement, they should. However, if you are seeking to enforce, revise or terminate the contract, these unprecedented times will require some flexibility from all sides.
This is also a good opportunity to prospectively review existing contracts to determine whether a force majeure clause should be added, or an existing clause should be revised to include disruptions resulting from epidemics and pandemics.
Finally, communication with all parties involved and with legal counsel will be paramount in ensuring that the situation is being handled properly and that any agreed upon changes to the contracts are reduced to writing to avoid future litigation. Preferably, on a medium other than a bar napkin or toilet paper square, even if you do have a square to spare.
