Force Majeure is defined as a “superior or irresistible force” in the dictionary but in terms of contractual law, it normally means an event or effect that can not be reasonably anticipated by the contracting parties but materially alters the practicality of performing the agreement.
Force majeure is a common clause in California agreements which frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of either party occurs. Typical events which so act in common contractual clauses are war, strike, riot, crime, epidemic or sudden legal changes in applicable law which prevents one or both parties from fulfilling their obligations under the contract.
It is important to differentiate Force Majeure from outside events which make a contract more expensive or inconvenient for a party. The freedom to contract is also the freedom to make mistakes, and if a project is misbid or becomes more difficult due to miscalculation by a party or by error or negligence, it does not necessarily excuse performance of the contract by that party.
Or, put more simply, if you errored in entering into a contract that will now lose money for you, that is not Force Majeure, but if events unanticipated and beyond your control make the contract impossible or impractical to perform AND you have written in the correct clause, you may be excused from performance without liability.
The Basic Law:
A in a contract essentially releases both parties from obligation or when a circumstance beyond the parties’ control occurs preventing fulfillment of the contract. If no such clause is in the contract, then the doctrine of impossibility of performance may apply and the reader should review that article on the website. Impossibility requires a higher degree of interference from events and lack of negligence or foreseeability on the part of the parties and varies from jurisdiction to jurisdiction. A force majeure clause in the contract allows the parties to specify precisely what external events nullify the contract.
Force majeure clauses normally include such circumstances as acts of war, riot, crime, or strike, as well as any event considered an “act of God,” such as an earthquake, hurricane, tornado, flooding, or volcanic eruption. Epidemic or pandemic which is severe enough to make performance impossible could be included in such a clause.
Note that in many cases where becomes an issue, the party’s duties under the contract are only suspended during the event. The wording of the clause becomes the determining factor in such cases.
Some extraordinary events, however, excuse both parties from fulfilling the contract permanently. For example, assume X entered into an agreement to paint a home but the home was destroyed by a tornado prior to the job commencing. In that case, all parties would be released from the agreement. The owner would not be required to make good on their promise to pay for the painting and X would not be required to paint the home.
What is Normally Not Treated as Force Majeure
While the interpretation of may be used to cover such issues as labor strikes and breakdown of vital machinery, either of which may temporarily excuse a party from performance, such events as bad weather, funerals, sporting events, or other normal life events are usually not valid excuses under the law. The reasoning behind this is that these are normal occurrences that temporarily interrupt life and work, and the possibility of such an interruption should be considered by the parties in making a contract.
Assume an unusually severe blizzard in Wisconsin delays delivery of a product. The typical force majeure would allow suspension of performance during the blizzard. That is typical bad weather. But assume an entire factory in San Diego is hit by a Tsunami and destroyed with years required to rebuild…if ever. In that case, such a severe and unusual event would not be considered merely “bad weather.” Common sense is the underlying theme here.
And note that a party invoking force majeure must demonstrate that said party made reasonable efforts to minimize delay and interference with performance due to the event or cannot invoke the clause. Assume a strike lasts for twenty days but the factory did not deliver for six months. Most courts would reject the strike as being a valid invocation of the force majeure clause.
The Force Majeure Clause:
While the specific events included in a contract clause are a subject of drafting by the parties, there are a number of events that are commonly used. When creating such a clause it is important to not only define the events covered, but what will happen if one of the events occurs, which party can suspend performance or terminate the agreement, and what happens in the event the event continues for a lengthy period of time. Legal help in crafting the clause is highly recommended.
A party shall not be held liable for failure of or delay in performing its obligations under this Agreement if such failure or delay is the direct result of an Act of God, such as earthquake, hurricane, tornado, epidemic, flooding, or other natural disaster, or in the case of war, action of foreign enemies, terrorist activities, labor dispute or strike, government sanction, blockage, embargo, or prolonged failure of electrical service. The non-performing party must make every reasonable attempt to minimize delay or lack of performance. In the event continues longer than XXX days, either party may terminate the Agreement, repaying the full amount of any deposit within 10 days of termination notice.
Each particular situation and contractual relationship may require unique terms. And if dealing with a jurisdiction that commonly has delays in delivery of raw materials or power, such clauses become critical. For example, in dealing with a supplier located in India, Brazil or Pakistan, it is common to have power outages in certain areas on a daily basis and any weather event can cause delays for weeks or months. China can impose export or taxation restrictions by fiat which can make the contract impossible to perform. Experienced legal counsel, not form books, is the best location to obtain an appropriate clause.
Force Majeure compared to Impossibility of Performance
In , “impossibility” provides a party with an excuse for failing to perform duties under a contract due to a change in circumstances that makes performance actually impossible to accomplish. A common law book example is the reroofing contract for a house that burns down prior to the project beginning.
It is noteworthy that, perhaps mistakenly, the doctrine of “impossibility” is also cited when performance under a contract has, due to an unexpected change in circumstances, made performance excessively difficult or costly. This, historically, is referred to as the doctrine of “impracticability.” This shift in the theme of the law has led to contention between the parties as the fact that the job is now expensive or more difficult can be advanced as a rationale to excuse performance.
The revered authority in California basic law is Witkin. Citing Witkin Summary of Law, California courts have held that, “force majeure is the equivalent of the common law contract defense of impossibility and/or frustration of purpose: performance of a contract is excused when an (1) unforeseeable event, (2) outside of the parties’ control, (3) renders performance impossible or impractical.
Note that merely losing money on a contract you pledged to perform is insufficient to impose force majeure in California. There must be other aspects of the undertaking that renders performance so onerous that the court is loathe to enforce it. It is not inconvenience. It is not greater expense. It is events outside your control that truly make performance impractical or impossible.
The Freedom to Make Your Own Clause:
The courts take seriously the freedom of a party to create its own clause and it should be obvious to the reader by now that taking time to negotiate an appropriate Force Majeure clause makes good sense. And the clauses can run the gamut from making it almost impossible to invoke the clause to making even economic difficulty sufficient to invoke the clause.
One such clause is the clause which is used for limiting the use of and impossibility excuses. This is often called the “Hell or High Water” clause. It specifies that certain duties under the contract must be performed “come Hell or high water,” which is to say, regardless of any difficulties that may arise.
Alternatively, one could insert a provision that if economics of the situation significantly alter, either party may abandon the contract. In markets with radically altering costs of supply or production, such clauses may be vital.
If the contract is silent on force majeure, a court's decision whether to excuse an impacted party's performance during the force majeure event depends largely on the foreseeability of the event under applicable California law.
Under California law, unless a contract explicitly identifies an event as a force majeure the event must be unforeseeable at the time of contracting to qualify. Free Range Content, Inc. v. Google Inc., No. 14-cv-02329-BLF, 2016 WL 2902332, at *6 (N.D. Cal., May 13, 2016) (citing Watson Labs. Inc. v. Rhone-Poulenc Rorer, Inc., 178 F. Supp. 2d 1099, 1111 (C.D. Cal. 2001).
As to the current COVID-19 outbreak (at the time of this writing), to constitute a force majeure event, the pandemic must be the proximate cause of nonperformance. See Hong Kong Islands Line Am.S.A. v. Distribution Servs. Ltd., 795 F. Supp. 983, 989 (C.D. Cal. 1991), aff'd, 963 F.2d 378 (9th Cir.1992).
Thus, the pandemic must directly make it impossible or impractical to perform and the party making the claim must demonstrate reasonable efforts to avoid the problems caused by the pandemic. This may require mask wearing and vaccinations being required for personnel and that will be undoubtedly be a subject of litigation in the future.
And, again, if the parties had been wise enough to include “pandemic and epidemic” in the relevant clause, the ability to advance that claim would be greatly improved.
A very wise elderly attorney once told the writer that all businesses evade having to write very complete contracts since it is expensive and delays performance (and payment) until something goes wrong that costs a great deal of money. “Then they wish they had hired you to write the very clause they are missing.”
What the pandemic has done has made it very clear to businesspeople that force majeure is not a luxury and should be addressed in every contract with sufficient detail so that the parties can know what their obligation is should events beyond their control occur.
Next year it may be wildfires or earthquakes. The year after, it may be strikes or hurricanes or lack of materials.
But all such events should be considered in drafting the correct clause.