Force Majeure FAQ :: When a Pandemic Ruins Your Contract
If this is your first visit to our site, welcome. My name is Thomas Maddrey, and I am a creative and art attorney in Dallas, TX. In this post we will answer some of the most common questions we have gotten in the past few weeks in the midst of the COVID-19 pandemic. As always, you can reach us at email@example.com, and we will be here for you!
What is a “force majeure” clause, and how do I use mine?
Force majeure, which is French for “superior force” is a legal concept that allows a party to be excused from performing a contract due to some sort of unforeseeable event. These types of events (also called “acts of God”) may include hurricanes, earthquakes, tornados, war, blackouts, government action, and, very currently important, pandemics. Whether or not your contract covers a particular event depends upon the language of the contract. To determine whether your force majeure clause has been triggered, take the following steps:
- First, read your force majeure provision (if you don’t have one, scroll to #2). This includes reading the list of force majeure events as well as any language before and after the list.
- Second, consider the list of events. If you don’t see your event listed (pandemic or government shut-down perhaps) OR a catch-all phrase that could include your event, you need to be particularly cautious.
- Third, carefully consider the language before and after the list of events. What is it really saying? If it says “the occurrence of any of these events excuses performance entirely” then you (or perhaps the other party) do not have to perform (but you do often have to make each party the way they were prior to the contract – i.e. return any pre-paid monies). However, if it says “if performance is rendered impossible by any of the following events”, pause for a moment. Ask yourself – is performance truly impossible? Or maybe is it just inconvenient?
- Fourth, if you’re still unsure about whether your clause excuses your performance or the performance of the other party, ask your attorney! They will be familiar with this type of situation and can help guide you.
Help – I don’t have a force majeure clause in my contract!
Even if a contract does not have a force majeure clause, a party can still be excused from performance. There are two avenues courts allow to excuse nonperformance of a contract:
- Impracticability. If some unforeseen event occurs, neither party assumed the risk of the event occurring, and a party now has an extremely high level of difficulty or expense in performing the contract, then a court may consider the contract “impracticable” and excuse the performance of the party. Consider the following example:
You are hosting a large art expo in Dallas, TX. You order hundreds of chairs and tables from a local supplier, who in turn orders them from an overseas manufacturer. However, a pandemic has occurred and the president bans all imports. As a result, the supplier can only purchase the tables and chairs from California for quadruple the price. The supplier wants out of the contract. In this example, a court would likely find the supplier’s performance impracticable and excuse performance because it has become extremely expensive for the supplier to perform the contract.
NOTE: Pay attention to “assumption of risk” for impracticability. If you order 100 paintbrushes from an art supply store and the store later says it can’t perform the contract because the cost of paintbrushes went up by a dollar, they are out of luck. Basic market fluctuations and other “predictable” occurrences are not a foundation for an impracticability defense.
- Frustration of purpose. If an unforeseen event occurs that destroys the purpose of the contract, courts have held that such an event excuses the performance of the contract.
Consider the following example: Again, you are hosting a large art expo in Dallas, TX. Attendance was supposed to be in the thousands. However, a recent pandemic has scared away all of the attendees, and only 50 people are willing to attend. You want out of the contract – the purpose of the event was to host a large expo to allow for ample networking and interaction, and now nobody is coming. In these circumstances, the court would likely find the purpose “frustrated” and excuse your performance.
I’m not sure if I’m excused from performance – what do I do?
Talk to your lawyer! They went to law school to help guide you through this jungle of words. Not only have they read contracts like yours before, but they are familiar with (or have access to) the cases that interpret your contract’s language.
I’m definitely excused from performance – what now?
If you are certain you are excused from performance, the next step is to review the rest of your contract. There are likely termination procedures you need to comply with (giving notice through email, for example), or perhaps financial situations that need to be addressed. Make special note of provisions regarding deposits, retainers, installments, etc. Sometimes, contracts are very unclear, and your attorney may provide you with some default procedures that are used in circumstances where contracts are lacking. They may also be able to contact the other party or their attorney to determine what steps to take next.
The other party is trying to get out of our contract, but I want them to perform.
First of all, read this article in its entirely. It will help give you the background you need to be able to understand whether or not the other party may stop performance. If you find that the other party does have a valid excuse (force majeure, impracticability, frustration of purpose), follow the appropriate termination procedures detailed in your contract. If you do not believe they have a valid excuse, consider the following steps:
- Communicate with the party in writing telling them that you do not believe they have a valid excuse from performance, and explain why.
- Do not terminate the contract abruptly– give the other party a reasonable chance to perform their end of the deal.
- If you are unsure of whether the party must perform, or the party insists on non-performance, consult with your attorney. They can assist you with the nuances contained in your contract as well as procedures for communicating with the other party.
Both parties still want to uphold the contract – can we agree to delay performance?
YES! – but get that agreement in writing AND have both parties sign! For example, you could draft an addendum like the following*:
“Due to the unforeseen event of the COVID-19 pandemic and the resulting cessation of tennis ball production, Mercury Swims, LLC and Ziggy Runs, Inc., agree to delay the performance of the January 23, 2020 Purchase Agreement (attached as Exhibit A) for 1,000 tennis balls. This agreement was to be performed on March 18, 2020. Both parties now agree that the Purchase Agreement will instead be performed on November 18, 2020.”
Both parties would then sign the addendum. This means that the original contract would stand, but now with a new date of performance.
*Again, it is always best practice to ask your attorney to draft you a provision that suits your specific needs. Every set of circumstances is different – protecting your business in times of uncertainty requires the care and skill of an attorney who is familiar with your situation.
Anything else I need to know?
If you are reading this article, some event has probably occurred that is making your life difficult. First of all, I applaud you for taking the steps that will be proactive and protective of your business. Carefully evaluating your options now will help create a more stable, secure future. If you are still uncertain, please reach out to us or any trusted legal advisor. This is what we do. We are here to help.