Contracts Force Majeure Events

Contracts And Coronavirus: Force Majeure Events

March 19, 2020

It’s not often transactional attorneys have the opportunity to write something timely with current events. This is one of those times. Unfortunately.

The subject of this article is force majeure clauses in contracts as it relates to Coronavirus. Here’s how the North Dakota Supreme Court has explained force majeure:

Breach of contract consists of “nonperformance of a contractual duty when it is due,” and the issue of whether a party breached a contract is a finding of fact. Sanders, 2008 ND 161, ¶ 7, 755 N.W.2d 826 (citation omitted). Generally, this Court’s cases have examined force majeure, also called “acts of God,” in the context of liability for negligence and liability in cases where no clause was present in a contract. However, in this case, the force majeure clause was specifically written into the contract. Black’s Law Dictionary defines a force majeure clause as “[a] contractual provision allocating the risk of loss if performance becomes impossible or impracticable, esp[ecially] as a result of an event or effect that the parties could not have anticipated or controlled.” Black’s Law Dictionary 718 (9th ed.2009). According to 30 Williston on Contracts § 77.31, at 364 (4th ed.2004), a force majeure clause is equivalent to an affirmative defense. “What types of events constitute force majeure depends on the specific language included in the clause itself.” Id. “[N]ot every force majeure event need to be beyond the parties’ reasonable control to still qualify as an excuse.” Id. at 367. “A party relying on a force majeure clause to excuse performance bears the burden of proving that the event was beyond its control and without its fault or negligence.” Id. at 365.

[A] force majeure clause relieves one of liability only where nonperformance is due to causes beyond the control of a person who is performing under a contract. An express force majeure clause in a contract must be accompanied by proof that the failure to perform was proximately caused by a contingency and that, in spite of skill, diligence, and good faith on the promisor’s part, performance remains impossible or unreasonably expensive.

Id. at 366.

Entzel v. Moritz Sport & Marine, 2014 ND 12, ¶ 7, 841 N.W.2d 774. Basically, force majeure clauses allocate responsibility and risk in the event of certain unanticipated or uncontrollable risks.

So, would Coronavirus be considered a force majeure event to excuse nonperformance of a contract?

It depends. It depends on the agreement language. It depends on the parties’ intent. It depends on the facts and circumstances. These are the ordinary rules of interpretation with all contracts.

The point here isn’t to take a position one way or another. The point here is to highlight that things like Coronavirus have far-reaching consequences. Force majeure clauses typically don’t get a lot of attention because they usually relate to unanticipated events. While it may remain uncontrollable, it shouldn’t remain unanticipated. If you are drafting a contract now, you should make sure to clearly define the allocation of responsibility and risk related to force majeure events. Force majeure could become a huge issue in contract interpretation and litigation in the very near future. It’s easier (and cheaper) to identify and resolve the issue beforehand than to litigate disputes afterward.

If you need help drafting your contract or have a dispute related to contacts, contact us.