Using the Force (Majeure)
The COVID-19 pandemic shut down our lives and most business industries, pushing many contracting parties to invoke their force majeure clauses. Typically, when a party fails to perform their obligations under a contract it is grounds for a breach of contract action. However, if your contract has a force majeure clause, you may be able to excuse or delay those obligations without triggering a breach.
Force majeure refers to unforeseen circumstances beyond someone's control that make it impracticable or impossible for them to fulfill their contractual obligations. This contractual clause allows for either the excuse or delay of contractual obligations due to specific triggering events, which can range from strikes to governmental action to 'acts of God' (i.e., natural disasters) and even pandemics. Because this is a contractual concept, there is no general statute of what constitutes a triggering event. What is agreed to by the parties in the contract is what is scrutinized by the court, which is why it's important to know which triggering events are included in your contracts. And, on that note, it’s important to know that there is in fact a force majeure clause in your contracts to invoke.
In order to invoke the force majeure clause, the invoking party must show that a listed triggering event has impeded performance of their contractual obligations, meet the required performance standard, and give proper notice to the other party/parties.
The invoking party needs to show that they are invoking the clause because fulfillment of their contractual obligations is impeded by at least one of the listed triggering events. These events are listed in the clause and can include a wide range of events or limited number; it is up to the contracting parties to make sure the listed events cover the kinds of obstructions they find appropriate to excuse contractual performance.
California's courts have interpreted triggering events narrowly when it comes to events that are specific to the industry of the parties involved, but not as narrowly when it comes to generalized events that were “unforeseeable at the time of contracting."[i] A global pandemic, such as COVID-19, may be considered unforeseeable for those contracts entered into in 2019, but probably not for ones entered into in, say, August 2020. Additionally, if your industry is affected every year by the hurricanes that hit the Gulf Coast, using a listed triggering event of ‘acts of God’ may not excuse you of your contractual obligations, since this type of obstruction occurs every year.
A party who wishes to invoke the force majeure clause must meet the impracticability or impossibility[ii] performance standard (which is set forth in the clause’s language). To be impracticable, performance of contractual obligations must be prohibitively expensive or extremely burdensome; this standard isn’t as high as impossibility, but it is still a high standard to meet. The invoking party must also show that they made sufficient and reasonable efforts to avoid the consequences of the triggering event and attempted to continue to perform their obligations under the contract. All reasonable efforts must be taken before invoking the force majeure; it is, essentially, an option of last resort, not a ‘get-out-of-jail-free’ card.
Additionally, the decision to invoke the clause cannot be solely financial, which does not meet the standard set by the courts as an impediment to fulfilling contractual obligations. The reason for invoking the clause has to be that there is no way for the party to fulfill their obligations, not that fulfilling those obligations in light of the triggering event will put the party in a worse financial position than they expected to be in when they had originally signed the contract.
Depending on your contract, the notice requirements may be in the force majeure clause itself or in their own section/clause. These requirements detail how parties must inform the other party/parties of situations that arise in connection with the contract, such as amendments, terminating the contract, or invoking the force majeure clause. However the contract details the requirements (e.g., only in writing, hand-delivered or sent by overnight courier, etc.), the parties must follow those requirements to properly serve notice on the other party/parties. If the contract is silent, give as much time and consideration as possible to the other party. No court wants to hear that you waited to notify the other party when you could have done it sooner.
If you have an active contract, you should check the force majeure clause’s language to determine (1) which triggering events are listed and may be used to invoke the clause; (2) if there are any notice requirements for how the parties must notify one another; (3) which performance standard the parties are required to meet; and (4) if there are any restrictions[iii] on who can invoke the clause.
If you are currently in contract negotiations or considering entering into a contractual relationship, make sure to look over this clause, even if it seems like typical “boilerplate” language: review what's required and who's allowed to invoke the clause in times of crisis. If you are the drafting party, review the force majeure’s language and make sure that the listed triggering events reflect our new pandemic reality. It will be a hard argument to make that triggering events such as 'pandemics' or ‘governmental action' are covered by other terms when you have the opportunity to update your agreements now.
[i] See Autry v. Republic Productions (1947) 30 Cal.2d 144. [ii] See Metzler v. Thye (1912) 163 Cal. 95, 98; Oosten v. Hay Haulers Dairy Emps & Helpers Union (1955) 45 Cal.2d 784, 788. [iii] Some contracts restrict use of the force majeure clause to the party who drafted the contract while others allow either party to invoke the clause.