Force majeure clauses have vaulted to the top of the contractual pecking order these days, thanks to the COVID-19 pandemic. Designed to absolve one or more parties from performing contracts when The Unthinkable happens, they typically list specific events from a "parade of horribles" and sometimes even provide a catch-all provision to cover unforeseeable crises. But catch-all provisions are the playground of good lawyers, and it often falls to courts to interpret and determine the effect the parties intended when The Unthinkable happens, including whether it was unthinkable at all. At root, these provisions allocate who should bear the financial cost of the disruption of the contract and do so by applying venerable common law principles, some of which are further enshrined in treatises and the Uniform Commercial Code.
Force majeure provisions in contracts exist in parallel to the common law doctrines of impossibility and frustration of purpose. When a contract has no force majeure clause, there still may be protection for the parties under those doctrines, but the exceptions may be narrower than those offered by more specific force majeure clauses. We have surveyed the law in all fifty states and the District of Columbia, leading treatises, conventions, and the UCC. What we hope to highlight and update are interesting cases from around the country, across industry verticals and usually stemming from fact patterns that might have been first seen in the Old Testament. Stay tuned for Real Estate, Hospitality, Energy Law cases, and more!
Georgia and Rhode Island
Economic crises often do not excuse performance. In Elavon, Inc. v. Wachovia Bank, National Association, a federal court in Georgia held that the then-unprecedented economic downturn of 2008 was not an "act of God," did not render contract performance impossible, and did not constitute a force majeure that excused the defendants' performance of their contractual obligations. 841 F. Supp. 2d 1298, 1306–08 (N.D. Ga. 2011). And in Tri-Town Construction Company v. Commerce Park Associates 12, LLC, the Supreme Court of Rhode Island held that the collapse of the national economy and purchaser's subsequent inability to obtain financing were not "substantial" frustrations, as required under the frustration of purpose doctrine to excuse performance. 139 A.3d 467, 475 (R.I. 2016).
Inadvisable is not the same as impossible. If the contract is silent on force majeure, other defenses may be available, such as impossibility, impracticability, or frustration of purpose. In 7200 Scottsdale Rd. Gen. Partners v. Kuhn Farm Mach., Inc., 184 Ariz. 341, 909 P.2d 408 (Ct. App. 1995), an Arizona court held that a convention organizer's performance under a contract for reservation of hotel rooms was not excused under any of the aforementioned defenses. Despite the fact that travel had become inadvisable because of the threat of terrorism during the Gulf War, it had not become impossible for the convention organizer to perform (to pay for the reserved facilities at the hotel), and the purpose of the contract had not been frustrated, since some of the attendees still planned to attend. The court additionally stated that the convention organizer demonstrated that the value of the hotel's performance had not been totally destroyed when the convention organizer reduced the number of reserved hotel rooms, which implicitly confirmed the reservation.
Unforeseen, uncontrollable impracticability, unless stated otherwise. In California, force majeure clauses vary depending on the nature of the contract, and parties may contract around the default rules. See Cal Civ. Code § 1511 (performance of an obligation is excused "[w]hen it is prevented or delayed by an irresistible, superhuman cause . . . unless the parties have expressly agreed to the contrary." (emphasis added)). For instance, in an entertainment contract, a force majeure clause may give particular significance and attention to the effects of a union strike as a potential force majeure. Moreover, a force majeure clause may, through its own terms, provide for a narrower or broader application of the doctrine than what is typically applied under common law principles (e.g., a strike may temporarily suspend a studio's contractual obligations, or it may permanently excuse a studio's performance, depending on the specifics of the clause in the contract).
Absent specific deviations, however, the underlying principles of impracticability or impossibility govern, and a party must establish the general requirements of an unforeseen, uncontrollable impracticability in order to invoke a typical force majeure clause. See, e.g., Sorbo v. Universal City Studios, LLLP, L.P., No. B205936, 2009 WL 931688, at *6 (Cal. Ct. App. 2009). In Sorbo, actor Kevin Sorbo sued Universal City Studios for breach of contract and fraud, arguing in part that health issues had hindered his ability to continue acting and had thus triggered the force majeure clause in his contract. Sorbo's argument was unsuccessful, however, mainly because he sought damages for harm allegedly incurred while he had continued to act despite his health issues. In other words, as both Universal and the court pointed out, the fact that Sorbo was able to work notwithstanding his ailments "rendered the force majeure clause inapplicable." Sorbo, 2009 WL 931688, at *6.
Foreseeable and unforeseeable events can be force majeure events. Although the default force majeure rules in Florida are consistent with those of other jurisdictions, Florida law appears to be particularly amenable to force majeure clauses that are drafted more broadly than the typical impossibility/impracticability doctrines. For example, Floridians may enforce force majeure clauses that include both foreseeable and unforeseeable events. See Home Devco/Tivoli Isles LLC v. Silver, 26 So.3d 718, 722 (Fla. Dist. Ct. App. 2010) (citing Stein v. Paradigm Mirasol, LLC, 586 F.3d 849 (11th Cir. 2009)). In Home Devco, the contract at issue referenced "acts of God, acts of governmental authority, hurricanes, strikes, labor conditions beyond seller's control, or 'any other similar causes not within Seller's control.'" 26 So.3d at 723. Concluding that the clause was valid, the Home Devco court explained that Florida precedent allows broad force majeure clauses as long as they do not render the contract illusory. Id. at 722¬–23 (citing St. Joe Paper Co. v. State Dep't of Envtl. Regulation, 371 So.2d 178, 180 (Fla. Dist. Ct. App. 1979) (implicitly recognizing that a force majeure clause that excuses delays for "any cause . . . not within the reasonable control of the company" was enforceable); and Camacho Enters., Inc. v. Better Constr., Inc., 343 So.2d 1296, 1297 (Fla. Dist. Ct. App. 1977) (interpreting force majeure clause as excusing delay where a president's heart attack was a circumstance "beyond the control" of the party)).
Frustration of purpose if the basic assumptions of the contract end without fault. Even in the absence of an applicable force majeure clause or a situation of pure impossibility, some jurisdictions will void a contract if the essential purpose of the bargain has been frustrated. The North Dakota Supreme Court found just such a situation in City of Harwood v. City of Reiles Acres, where two cities fought over a 30-year-old contract to share the costs of addressing common wastewater treatment problems. 859 N.W.2d 13, 16-18. However, in the years since the agreement, both cities had grown in population and had engaged a third party for all of their wastewater treatment needs. Id. The court reasoned that the "agreement's principal purpose was substantially frustrated after both [cities] contracted with [a third party] for their waste water treatment needs." Id. at 18. Therefore, the "contractual responsibilities to pay maintenance costs were impractical" Id. at 18. The court recognized the frustration of purpose doctrine in North Dakota and explained that a "[f]rustration of purpose occurs when after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made." Id. (internal citations and quotation omitted.) Thus, in some jurisdictions, the existence of such a doctrine could allow an escape from contracts that no longer serve their core purpose.
Bonus: an Alabama Exception
While most states recognize the Restatement (Second) of Contracts § 261 ("Discharge by Supervening Impracticability"), Alabama does not allow impossibility or impracticability. The Supreme Court of Alabama has repeatedly declined to recognize the defense of impossibility or impracticability. See Silverman v. Charmac, Inc., 414 So.2d 892, 894 (Ala. 1982). "Where one by his contract undertakes an obligation which is absolute, he is required to perform within the terms of the contract or answer in damages, despite an act of God, unexpected difficulty, or hardship, because these contingencies could have been provided against by his contract." Id. (citations omitted).
Please let us know if we can help you interpret the force majeure clauses in your contracts, by drawing on our research and expertise.