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Brace for the wave of “Force Majeure” litigation

April 22, 2020

By: Anton N. Handal

Force majeure clauses, often an afterthought in most contracts, may throw a life line to businesses finding themselves on the short end of the new pandemic economy. Almost every contract provides a force majeure boilerplate paragraph. They are also rarely enforced and routinely overlooked by lawyers. But, no longer, as clever lawyers are now taking a closer look at force majeure clauses to help clients that are suffering as a result of pandemic or government shutdown conditions.

Good lawyers are going make arguments that the coronavirus pandemic is an act of God, or that government shelter in place orders, which shutter businesses, are superior intervening forces. Both are good arguments and hard to overcome, particularly since there is little to no pandemic precedent to rely on.

As the California Supreme Court noted in Pac. Vegetable Oil Corp. v. C. S. T., Ltd., 29 Cal. 2d 228, 238 (1946) “ ‘[f]orce majeure,’ or the Latin expression ‘vis major,’ is not necessarily limited to the equivalent of an act of God. The test is whether under the particular circumstances there was such an insuperable interference occurring without the party's intervention as could not have been prevented by the exercise of prudence diligence and care.” California Civil Code § 1511 provides that contractual obligations may be excused or delayed because of an irresistible, superhuman cause. California Civil Code § 3526 also provides that “no man is responsible for that which no man can control.” It is therefore hard to argue that COVID-19 is anything less than an insuperable force that has interfered to render contractual agreements meaningless.

California, Civil Code § 1511 goes beyond superhuman causes by providing that obligations in contractual performances may be excused when prevented or delayed by the operation of law. This raises the argument that State Shelter in Place Orders amount to operations of law that justify the extinguishment of contracts or delaying contractual performance that may include the payment of rent.

At bottom, the laws of the State of California expand the concept of impossibility of performance to include a broad range of conditions never seen before the COVID-19 outbreak. Expect a wave of litigation where the courts are going to have to grapple with these new legal concepts and further define how force majeure paragraphs should be interpreted.

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