It is no exaggeration to state that the coronavirus (COVID-19) pandemic has been the largest disruptor to businesses this year. Productivity has slowed as co-workers self-quarantine to prevent the risk of exposure to the virus, and offices across the nation are closed as a way of slowing the spread of the disease. Naturally, one question that arises out of these events is whether businesses are expected to perform under their contracts or whether they are excused from performance in light of the current crisis. The answer to that question may rely on the heretofore rarely used force majeure clauses contained in their contracts.
What is the Doctrine of Force Majeure?
Force majeure, translated to “superior force,” is an established doctrine from French law that relieves one or both parties from performing their obligation under a contract when circumstances arise that make performance impractical or impossible. Under the doctrine, contractual nonperformance is excused when such nonperformance is caused by unforeseen events beyond the control of both parties. If the event was foreseeable, then the parties could have made provisions for its occurrence before agreeing to the contract terms. Likewise, the parties must not have alternative methods for performing under the contract.
Force majeure clauses typically include a list of covered events that will excuse performance such as natural disasters (earthquakes, floods, and hurricanes, acts of God) or human or political events such as acts of war, civil strife, riots, terrorism, labor strikes and acts of government. What qualifies as a force majeure event in any particular circumstance and contractual relationship depends entirely upon the specific acts and language included in the force majeure clause of each individual contract, because the language contained in the particular force majeure clause is unique to the contract in which is located. Additionally, the specific language of the clause will govern its scope of coverage and when a party may be excused from performance.
Does the Doctrine of Force Majeure Supersede the Terms of a Force Majeure Clause within a Contract?
One pitfall any business needs to be aware of when analyzing whether to invoke a force majeure clause is that the doctrine of force majeure is not a fixed rule of law that governs every force majeure clause in every contract. Rather, it is a concept that describes particular types of events. Thus, determining whether an event qualifies as a force majeure event under a contract is essentially a question of contract interpretation-the doctrine cannot, and should not, supersede the terms the parties bargained for in the contract itself. When the parties have defined the terms of the force majeure clause in their contract, then those terms control the application, effect, and scope of the force majeure doctrine. A global pandemic is likely an event that falls within the concept of force majeure, but knowing that does not address the actual question businesses should be asking-is the coronavirus crisis a qualifying event under the specific terms contained in the force majeure clause of my contract? Assuming that the answer to that question is yes, the next question to be asked is whether the crisis, itself, has caused the affected party’s failure to perform.
Businesses should also assess whether the state law governing their contract has any specific requirements before they may invoke the force majeure clause. For instance, under Texas law, the court in TEC Olmos, LLC v. ConocoPhillips Co. made it clear that a showing of unforseeability is not necessary if the qualifying event is specifically listed in the enumerated terms in the force majeure clause.
What if Your Contract Lacks a Force Majeure Clause?
In Massachusetts, even if a contract lacks a force majeure clause or the language in the contract’s force majeure clause does not cover the event, parties may still have defenses under common law to a breach of contract claim. The doctrine of impossibility performance, or the more modern interpretation, “impracticability” of performance, excuses performance under a contract where (1) the occurrence of an event has made performance impossible or unreasonably difficult; (2) the event occurred without the fault of the party asserting the defense; (3) the party made the contract assuming the event would not occur; and (4) the party did not assume the risk of the event. A similar doctrine, frustration of purpose, examines (1) the foreseeability of the supervening event; (2) the allocation of the risk of the events occurrence; and (3) the degree of hardship on the party asserting the defense. Whether any of these doctrines provides a defense to a breach of contract claim, or justifies a failure to perform an obligation under a contract, requires painstaking analysis of the circumstances underlying the action.
Given the rapid spread of COVID-19 and the seriousness of the global response, including the World Health Organization officially declaring the disease a pandemic on January 30, 2020 and Governor Baker’s March 23, 2020 Order closing non-essential businesses and the related Stay-at-Home Advisory, it is certainly understandable that parties to a contract would assume the COVID-19 pandemic justifies the invocation of a force majeure clause. However, whether parties may do so successfully depends on the specific language contained in the individual contract, any state requirements for invoking the clause, and the underlying facts as to why a particular force majeure event triggers the clause.