Force Majeure Clauses and Excuses in the World of COVID-19
A force majeure (meaning “superior force”) clause is a standard contract clause found in many contracts, including real estate sales agreements, acquisition agreements and employment contracts. Such a clause provides a contracting party with an excuse to delay or terminate the party’s performance obligations under certain circumstances that make performance impracticable or impossible. The purpose behind these clauses is to protect a party from risk when its failure to perform is not the party’s fault. The clause may include foreseeable as well as unforeseeable events, like COVID-19, possibly as an act of God, act of governmental authority, or natural disaster.
If you search the internet for “force majeure COVID-19”, you will find close to 15 million results. It is a hot topic, because many businesses and individuals are unable to comply with their contractual obligations. In addition to force majeure clauses, other contract principles of impossibility and frustration of purpose should also be evaluated if you find yourself in need of relief from contractual duties.
There are few cases in Florida case law, even in Florida Circuit Court case law, that interpret force majeure clauses. However, one Florida court has held that a company president’s heart attack was a sufficient excuse for delay in construction because it was “beyond the control” of the development company. What is clear is that a trial court will interpret the clause as a matter of law, once it is satisfied that the material facts are undisputed.
Another example of use of the force majeure excuse is found in Donald Trump’s 2008 lawsuit against Duetsche Bank seeking to postpone the maturity date of a loan agreement related to the Trump International Hotel and Tower in Chicago. Trump claimed that the global economic crisis constituted a force majeure event as defined in the $330 million construction loan agreement. Deutsche Bank ultimately consented to a five-year extension of the loan agreement.
All parties to a contract must carefully review the force majeure clause in the contract. As between individuals, contracts can usually be modified in the event of circumstances beyond the parties’ control. However, contract modification is less likely when a corporation or business is one of the parties. Sophisticated parties are held to higher standard of what is and is not foreseeable. Accordingly, close review is warranted to ensure that the force majeure or similar clause unambiguously addresses events that are not reasonably foreseeable. Terminology such as “beyond the control” of one or both parties should generally be avoided.
In conclusion, as a result of COVID-19, force majeure provisions are being brought up now more than ever. If you need assistance with interpreting a force majeure provision in an existing contract or require assistance in drafting a force majeure provision into a new agreement, contact the attorneys of Lacey Lyons Rezanka.
• Is the Force Majeure With You? A review of potential applications of “act of God” clauses in Delaware, in light of COVID-19, By Travis S. Hunter and Renée Mosley Delcollo. July 06, 2020.
• A Closer Look At The Coronavirus Pandemic As A Force Majeure Event; Case Precedent Can Complicate The Interpretation Of Seemingly Simple Force Majeure Clauses, By Colin C. Holley, Partner – Watt, Tieder, Hoffar & Fitzgerald LLP. March 31, 2020.