COVID-19: Contractual Protection of "Force Majeure" Clauses
There remains a great deal of uncertainty in the world right now. That uncertainty extends to all aspects of our lives, including our businesses. Setting aside the personal toll taken by the spread of the novel coronavirus and resultant COVID-19 pandemic, businesses are struggling because of disruptions caused by mandatory closures, travel bans, quarantines and worker shortages. It is all but certain that food companies will continue to face extraordinary challenges in the weeks and months to come.
Given the enormous and now seemingly persistent uncertainty, many businesses are worried about their future ability to meet contractual obligations, and what sort of liability they may incur in the event of a breach. Fortunately, there is some good news on this front.
Unless you are a lawyer, you’ve likely never heard the phrase “force majeure.” Force majeure is a legal term of art, meaning “superior force.” In simple terms, it refers to a type of common contractual clause that discharges parties of their performance obligations in the event of an extraordinary event or circumstance, such as a plague or pandemic. A force majeure clause is not intended to buffer a party against the normal risks of a contract. Entering any contract or bargain involves a certain amount of risk, and courts will not relieve a party of their liability for failing to perform based on reasonably foreseeable risk, such as regular market fluctuations. A pandemic, on the other hand, is a unique and unforeseeable event of the type force majeure is specifically calculated to protect against. Thus, to the extent you are unable to meet your contractual obligations as a result of COVID-19, and your contract contains a force majeure clause, you should be protected from incurring any liability.
Even if your contract does not have a force majeure clause, it may still be possible to discharge contractual duties under the common-law doctrine of supervening impracticability. According to the restatement (2d) of Contracts, “Where, after a contract is made, a party’s performance is made impracticable without his (or her) fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his (or her) duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.” In short, this doctrine would likely be applicable in the context of COVID-19 because the pandemic is an unforeseen occurrence that makes performance impossible. Other available contractual remedies may include the doctrines of “impossibility” and “frustration.”
The short-term future will likely be very difficult for all of us. Now, perhaps more than any other time in most of our lives, we need to band together, cooperate and put our collective interests above our personal interests. There is no doubt we will get through this. The only question is how we will get through it. If we stand together and do the right thing, we will emerge sooner and stronger than ever before. NP