The unprecedented impact of COVID-19 poses an interesting question: what role will force majeure clauses play in COVID-19 related contract cancellations, disputes, and subsequent litigation?
Many contracts contain a force majeure clause, typically buried within boilerplate language, which can excuse a party’s nonperformance if extraordinary events prevent the party from fulfilling contractual obligations. The response to COVID-19 has included government-imposed restrictions that have interrupted industries and forced businesses to adjust their practices.
A force majeure clause generally excuses contract performance in the event extraordinary circumstances render contractual performance impossible.1 Typically, the clause must specify with particularity the condition(s) that leads to the inability to perform. A catch-all phrase designed to encompass any foreseeable event will likely be too broad and insufficient.2 Events triggering a force majeure clause may be:
- natural disasters,
- civil unrest, or
- lengthy shortages of supplies.
Courts have historically interpreted force majeure clauses narrowly. For example, in Melford Olson Honey Inc. v. Adee, despite a force majeure clause specifically excusing performance based on drought, the Court found that contract performance was not excused merely upon the happening of a drought because factual questions existed as to the severity of the drought and whether contract performance was still possible under the circumstances.3
Force Majeure and Contract Enforcement
Because most courts narrowly construe force majeure contract clauses, the effect of COVID-19 on contract performance depends largely on the express language contained within the particular force majeure clause. Considering that the World Health Organization declared a COVID-19 pandemic,4 a force majeure clause that expressly include “pandemics” may excuse performance of a contract if performance proves to be impossible. If the clause in question does not expressly include “pandemics”, it may not be applicable unless other express language in the clause includes events which arguably could encompass the COVID-19 pandemic.
Under some circumstances, government action, which might render contract performance impossible, could potentially trigger a force majeure clause. Most states, including Minnesota, have issued mandatory stay-at-home orders, prompting closure of some non-essential businesses. If a stay-at-home order or similar government order renders contract performance impossible and the clause specifically accounts for such action, a party may have a force majeure defense to contract enforcement.
Other Legal Doctrines Impacting Contract Performance
Even in the absence of a force majeure clause, there may be other legal defenses to enforcement, such as impossibility or impracticability. Performance of contracts for the sale of goods governed by the Minnesota Uniform Commercial Code may be excused for failure of a presupposed condition.5 In order for this section of the Code to apply, the event must be unforeseeable.6
Questions? We’re Here to Help.
Reach out to us if you need to confer with legal counsel about whether your contract contains a force majeure clause, the impact of entering into contracts that contain force majeure clauses during the current pandemic, and what impact those clauses may have on contract enforcement.
HAWS-KM’s attorneys continue to monitor this situation as new guidance emerges in response to COVID-19. We are ready to assist you in assessing your legal obligations and help you make the right decisions for your business.