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Force Majeure and Contract Performance

April 2020

In an attempt to allocate risk of non-performance in circumstances beyond the parties' control, force majeure clauses (an act of God or other unforeseen circumstances) may be included in some contracts.  This doctrine has been narrowly applied due, in part, to judicial recognition that the purpose of contract law is to allocate the risks that might affect performance, and that performance should only be excused in extreme circumstances.  It is certain the current pandemic will bring these obscure clauses into the courtroom.  Not every contract has a force majeure clause, and you should first look to see if the contract has such a clause. These clauses are found in many contracts, such as leases, or for the delivery of goods.  This article is a brief description of what to consider in the event you have a force majeure clause that might help or harm you.

Force majeure considerations:

  • Is the clause limited? Does it include an example of force majeure, a pandemic or epidemic? If it expressly excludes such an event, then the inquiry under present circumstances probably ends there with respect to COVID-19.  If it is silent as to examples, then the inquiry may continue.
  • The party advancing the doctrine must show that the events or circumstances which they claim rendered performance impossible were not reasonably foreseeable at the time of contracting. For example, expect an argument that the swine flu pandemic in 2009 and/or the 2014 Ebola virus disease epidemic made this pandemic foreseeable.
  • Was performance of the contract made impossible because of the pandemic? Was performance attempted?  Was it a voluntary decision not to perform?
  • The right to rescind a contract must be exercised promptly on discovery of facts that confer the right to rescind, otherwise the right is waived. If you anticipate delayed or disrupted performance because of the pandemic, you should provide notice in writing to the other party promptly.
  • You have a valid provision and a clear basis for non-performance. Now what?  Some clauses simply delay the deadline, some excuse performance and some are hard to tell what the result is.
  • It is important to maintain detailed records related to the non-performance and what you did as a result. By the time these clauses get to a hearing, which may be some time in the future, maintaining good records is essential.

If you have any questions regarding these provisions contact your Pedersen & Houpt attorney or Arthur Holtzman  at 312.261.2111 or aholtzman@pedersenhoupt.com to discuss the ramifications of your specific situation.