What in the world is a “force majeure”?
The phrase “force majeure” has gotten more attention in recent weeks than it had for many years, if ever. Force majeure literally means “superior force.” Force majeure clauses appear in many commercial contracts and allow the parties to avoid performing their obligations in the event of certain unexpected and catastrophic events.
Many businesses have been dusting off their commercial contracts lately to see whether those agreements include a force majeure clause that might allow them to stop paying rent, for example, in the midst of the COVID-19 crisis. As with so many other legal questions, the answer depends on the terms of the contract. Often events of force majeure are limited to a specific list of catastrophes, such as natural disasters. A force majeure clause may not excuse all performance under a contract, either. For example, some leases still require payment of rent even if a force majeure event occurs, which is of little help to the tenant.
No force majeure clause? What about frustration of purpose or impossibility?
If your contract does not have a force majeure clause, all is not lost. In North Carolina, there is a common law defense to breach of contract claims, called the “doctrine of frustration of purpose.” For it to apply, there must be some changed condition that excuses performance. That change must not have been “reasonably foreseeable” and must make performance under the contract much more difficult than it otherwise would have been. The classic example occurs when the subject matter of the contract is destroyed or badly damaged.
It is often difficult to show that the frustrating event was not reasonably foreseeable, especially where the contract could have addressed the issue. For example, one North Carolina case held that labor strikes were not so extraordinary as to be beyond the “imaginations” of the contracting parties.
A slightly different, but related common law concept is the doctrine of “impossibility,” where non-performance under a contract may be excused if a party’s performance is rendered impossible by the law, as long as the party trying to avoid the contract is not at fault and has not assumed the risk of performing whether it becomes impossible or not. Again, the party seeking to be relieved by the doctrine of impossibility must show that the event rendering performance impossible was not reasonably foreseeable.
The doctrine of impossibility is based on concepts of fairness and reasonableness. A party must prove the unexpected occurrence of an intervening event, that this changes a basic assumption of parties’ agreement, and that the event made performance under the contract impracticable.
It is unlikely that many commercial contracts addressed the situation we are in now. Force majeure clauses may help avoid at least some of the requirements of a commercial contract. If your contracts do not have a force majeure clause, many businesses impacted by “stay at home” or “shelter in place” orders may need to turn to frustration of purpose or impossibility as defenses to a breach of contract claim by the other party to an agreement.