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Coronavirus and Force Majeure Clauses

May 23, 2020 CSBB Blog

The unyielding impact of the Coronavirus pandemic cannot be understated, especially considering the ever-increasing invocation of “force majeure” clauses in connection with contracts entered into before this disease took the world by storm. While there are no clear answers, we hope to guide you into asking questions that we are happy to discuss with you, and of possible recourse in these trying times.

Force Majeure:
You have likely seen a provision concerning a force majeure event in contracts, such as your lease. Generally speaking, force majeure is an unforeseeable circumstance that prevents someone from fulfilling a contract.

So does force majeure cover the Coronavirus? The answer is, as expected, that it depends. First and foremost, the terms of the contract always prevail, and courts typically construe force majeure clauses very narrowly. Even if the result is ostensibly unforgiving or imbalanced, a court is bound by the law to interpret a contract according to its plain and unambiguous meaning. Further, the party seeking to assert the force majeure clause typically has the burden of proving its applicability, including that the event was beyond its’ control and without its’ fault or negligence. So arguably, if your contract has a force majeure clause, but does not contain language that would cover an epidemic/pandemic/disease, or something along those lines, then the clause may not apply. If the clause does contain language that could be perceived as covering an epidemic/pandemic/disease, that does not automatically mean that your obligations cease.Your remedy largely depends on what the contract permits.

What if your force majeure clause includes the general “Act[s] of God”? An Act of God that will excuse the nonperformance of a contract must be an act or occurrence so extraordinary and unprecedented that human foresight could not anticipate or guard against it, and the effect of which could not be prevented or avoided by the exercise of reasonable prudence, diligence, and care. There must be no admixture of negligence or want of diligence, judgment, or skill on the part of the promisor (i.e., the person who made the promise). Whether Coronavirus falls within the definition of an Act of God is open to interpretation, but it would not necessarily be unreasonable to argue such a position.

It should be noted that taking precautionary measures or making a voluntary decision not to perform is not the same as being prevented from performance. An unexpected impediment to the performance of a contract will not relieve a party from contractual obligations, unless the party’s performance is rendered impossible by an Act of God. Choosing to close a business down as a preventative measure does not necessarily trigger the Act of God provision.

Ultimately, whether Coronavirus falls within force majeure is a fact-intensive inquiry that depends on your actions, the contract, and outside forces, among other things.

What If Your Contract Does Not Contain A Force Majeure Clause?

Florida law has “gap-fillers” such as impossibility/impracticability and/or frustration of purpose if a contract has no force majeure clause. The applicability of frustration and/or impossibility is a fact intensive inquiry, and the courts are narrow in their application of such positions, as courts are reluctant to excuse performance that is not impossible but merely inconvenient, profitless, and expensive.

For frustration, the parties must consider whether the purpose underlying the agreement has been frustrated for both parties. Specifically, where performance is possible but an alleged frustration, which was not foreseeable, totally or nearly totally destroyed the purpose of the agreement. Some examples cited in a Florida case where frustration did not apply, include:

– Lessee’s obligation continues where risk of war and consequent limitation made business unprofitable but not impossible;
– Lessee must continue to pay rent where object of contract, use of grain elevator, possible but tariff rise, anticipated when lease renewed, made use unprofitable;
– Doctrine of economic frustration and doctrine of impossibility unavailable to void lessee’s purchase contract where zoning change modified but did not negate proposed use of property under lease).

In sum, just because Coronavirus renders running the business costly or unprofitable, does not mean that you are relieved from paying your rent or other obligations. The rationale is that you are still able to rent the property, you are just not able to make money from occupying it.

For impossibility, the parties must evaluate whether performance is objectively impossible (i.e., will performance merely be difficult or expensive, or can a party genuinely not perform its’ contractual obligations). In applying the preceding, there may be a valid impossibility defense if, for example, a person necessary to performance has died or become incapacitated or quarantined, or if performance has been rendered illegal by government containment procedures or other regulations.

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