Guest Commentary By Sharon Markowitz, Stinson LLP
Three Things You Need to Know About Force Majeure During a Pandemic
If you’re like most people, you rarely heard the words “force majeure” before COVID-19 was declared a pandemic. Since then, the phrase may have become as familiar to you as “social distancing” and “shelter-in-place.”
“Force majeure” is a contract principle that excuses one or both parties from performing their contractual obligations under unusual circumstances — the type of unusual circumstances that have become commonplace during this pandemic.
Unfortunately, determining what your rights are under a force majeure clause can be complicated. And, draſting a good force majeure clause during a pandemic can be even more complicated. Below are three things you should know before you dive in.
1. Just because your contract includes a force majeure clause the pandemic. And, just because your contract does NOT performance is NOT excused by the pandemic.
Some, but not all, contracts include force majeure clauses that excuse a party from performing its contractual obligations under certain circumstances. But, force majeure clauses vary wildly, and they usually require the party declaring force majeure to show that an unexpected event made it impossible or impracticable to perform its contractual obligations (though some clauses set a lower threshold). So just because the pandemic makes performance unpleasant or unproductive doesn’t mean that a party can avoid performing its contractual duties.
Conversely, if your contract does not include a force majeure clause, the common law or the Uniform Commercial Code may “fill the gap” and excuse a party from performing its contractual obligations if an unexpected event makes performance impossible, impracticable or illegal.
Bottom line: Whether you have a force majeure clause is not the bottom line.
2. Figure out where the money goes. When Party A is “excused” from performing under a contract, that merely means that Party A can fail to perform its contractual obligation without being liable to Party B for the damages that Party B suffers as a result. Tat says nothing about what contractual payments the parties must make or return to one another.
To figure that out, you usually have to look outside the force majeure clause. Look at what the payment provisions say. Look at what the deposit and refund provisions say. Does a party have to make pre-payment? Are deposits nonrefundable? In combination, these provisions might tell you who owes what aſter a party declares force majeure.
If the contract doesn’t answer that question, you may have to look to the common law. Under the common law, each party must pay the other the benefit that the other conferred upon the party: in other words, the payment the party received that it didn’t already earn or use in pursuit of the contract. But determining what that amount is can be tricky.
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