The worldwide spread of the coronavirus requires companies and counsel to review third-party contracts at risk for disruption or non-performance due to the epidemic. Many contracts may contain what is commonly known as a “force majeure” provision, which may excuse performance and liability. An example of a force majeure provision from a services contract is below:
"Neither Party shall be liable hereunder for any failure or delay in the performance of its obligations under this Agreement, except for the payment of money, if such failure or delay is on account of causes beyond its control, including labor disputes, civil commotion, war, fires, floods, inclement weather, governmental regulations or controls, casualty, government authority, strikes, or acts of God, in which event the non-performing Party shall be excused from its obligations for the period of the delay and for a reasonable time thereafter. Each Party shall use reasonable efforts to notify the other party of the occurrence of such an event within five (5) business days of its occurrence. If Contractor’s performance is delayed over [number] days, Client may terminate this Agreement."
This type of provision relieves parties from performing their contractual obligations when unforeseen circumstances arise which render performance inadvisable, commercially impracticable, illegal, or impossible. Force majeure is considered contract “boilerplate,” and is often buried alongside standard terms toward the end of an agreement, so many companies do not pay much attention to this clause until the company, or a third-party with whom they contracted, wants to get out of the contract.
When analyzing these clauses, it is important for companies to consider, at least on a preliminary basis, the questions below:
In the coming months, we anticipate that many businesses will bring assertions of force majeure in response to quarantines, business closures, and travel restrictions. Whether companies can properly rely on force majeure as a means to get out of a contract depends on the language of the clause, the facts relevant to the particular contracts and businesses at issue, and mitigation efforts.
Smith Shapourian Mignano PC is available to answer any questions or concerns you may have regarding force majeure.
This blog does not constitute solicitation or provision of legal advice, and does not establish an attorney-client relationship. This blog should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter in a timely manner, as statutes of limitations may bar your claim.