March 23, 2020
Due to the COVID-19 pandemic, many obligations under existing contracts may no longer be achievable or are now near impossible to perform. While failure to perform would ordinarily likely amount to a breach of contract, force majeure clauses may excuse obligations and provide relief to breaching parties. A force majeure provision in a contract allocates or shifts the risk of loss if performance becomes impossible or impracticable as a result of an event that the parties could not have anticipated or controlled, like natural disasters or catastrophes. Below please find some key points about invoking a force majeure clause in response to COVID-19:
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When considering whether the global COVID-19 pandemic excuses the performance of parties under a force majeure clause, look closely at the specific force majeure language in the agreement
. This is especially important in Texas, where courts have analyzed the common meanings of words used in force majeure clauses. Some force majeure clauses provide a list of events that would trigger relief. Others provide added protections under catch-all provisions, such as “any other cause beyond the control of the parties.” Invoking a force majeure clause due to COVID-19 will likely be more successful when a catchall provision is present, than when the clause lists minimal or limited force majeure events.
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The force majeure standard in the contract will also play a key role in determining whether the global COVID-19 pandemic excuses performance of the parties
. For example, the force majeure standard in some contracts requires performance be impossible, illegal, or entirely prevented due to the force majeure event. Invoking a force majeure clause in such instances will be more challenging than in instances where the standard merely requires performance be hindered, delayed, or interfered with.
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If a force majeure clause can be invoked, proper and adequate notice should be given
. In some contracts, force majeure notice procedures are specifically detailed in the provision. In those situations, notice procedures should be followed as required by the contract. In other contracts, the force majeure clause may be silent as to notice requirements. Nonetheless, a party that wishes to invoke the force majeure clause should give written notice to the other party.
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Even where the COVID-19 pandemic might not amount to a force majeure event under the terms of the contract, relief may be available through other avenues, such as impossibility.
If the language in a force majeure clause is limited and would not be triggered by the COVID-19 pandemic, other sections and provisions in a contract may excuse performance and provide relief to a party in breach of a contract due to COVID-19. Additionally, if the contract contemplates the sale of goods, Uniform Commercial Code § 2-615 would apply, which provides a defense if “performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the
c
ontract
was made or by compliance in
good faith
with any applicable foreign or domestic governmental regulation…”
Please contact us if you have questions about or concerns as to whether COVID-19 would excuse your or your company’s performance or obligation under an existing contract.
