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Note: On Force Majeure & Coronavirus
Coronavirus has created unprecedented social and economic upheaval and consequently has raised questions about clients’ contractual obligations. One of the ways that clients may attempt to avoid liability for breach of contract is to rely on the concept of “force majeure.” Generally, a force majeure clause in a contract excuses a party’s non-performance in light of some unforeseeable and uncontrollable event. If your client is trying to invoke force majeure to get out of your contract, here are some important things to know:
1. Force majeure is a creation of contract, not common law. This means that if there is no force majeure clause in your contract, it doesn’t apply.
2. If there is a force majeure clause in your contract, the language of the clause will determine whether or not it applies. Often a force majeure clause lists what kinds of trigger events will frustrate the contract. If the contract specifically mentions viral outbreaks or pandemics, then it likely applies. If the clause lists state or federal regulations rendering performance impossible as a trigger (which is more likely), whether or not it applies may depend on your local regulations.
3. The “event” that triggers the force majeure cause should actually render the performance impossible or highly impractical. A party will, for the most part, not be able to invoke force majeure to excuse themselves from contractual obligations that have simply become more expensive.
4. If there is no force majeure clause in the contract, or if it doesn’t apply, a party can still try to excuse non-performance through the doctrines of impossibility or impracticability. To prove this, the party must show that an unexpected intervening event occurred that made performance impossible or impractical. The court will look at whether the non-occurrence of the event is a basic assumption of the contract. Economic shifts and lost profits are rarely a basic assumption of a contract.
5. Alternatively, a party seeking to break a contract may argue frustration of purpose. The doctrine of frustration of purpose, like the doctrines of impossibility or impracticability, require that an event occurred (at no fault of the claiming party) that substantially frustrated the party’s principal purpose. Again, the non-occurrence of the event must have been a basic assumption of the contract and likely will not include economic shifts or lost profits.
This is obviously a difficult time for everyone, and if you can afford it, you may want to be flexible. You do not, however, need take your client’s word for it if they claim they’re legally entitled to break your contract. Be especially suspicious of clients who claim force majeure as a reason for non-payment. This will rarely, if ever, be an acceptable excuse for a client to avoid paying their debts. a
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