The Intricacies of the Force Majeure Clause During this Pandemic

The Force Majeure Clause

Before COVID-19 hit, most people couldn’t tell you the definition of a force majeure clause. Simply put, a force majeure clause excuses a party from performing under a contract, if their performance becomes implausible or impractical, because of some unforeseen or unanticipated event. These uncontrollable events are also known as “Acts of God”.

Parties often place force majeure clauses in contracts but believe it’s unlikely they will be utilized. The clause adds another layer of protection for those in the contract. However, COVID-19 changed everything and has brought this rarely considered contract provision to the forefront.

The fact is: until now, many force majeure clauses contained language regarding “Acts of God” from fire, earthquake, floods, etc. They did not include any reference to a global pandemic. As a result, much debate has arisen about force majeure clauses that do not explicitly list a pandemic. Some strict interpretations of the provision say that if it is not listed, the clause cannot be utilized based on COVID-19. Other interpretations state that a pandemic is within the realm of the other “Acts of God” and the clause can be utilized.  

Fortunately, California courts have liberally construed explicit force majeure clauses. Courts have found that if the “Act of God” is “unforeseeable at the time of contracting”, as well as related to the other explicitly listed events, they will consider the unlisted “Act of God” to be part of the clause. See Autry v. Republic Productions (1947) 30 Cal.2d 144.

What if your contract does not contain an explicit force majeure provision? California law does provide some protection. California Civil Code section 1511(2), provides that the performance of an obligation is excused “when it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States unless the parties have expressly agreed to the contrary.” Many argue that a global pandemic falls under this code and would excuse performance under a contract. Like any issue up for debate, we must wait for these cases to weave their way through the courts to arrive at a definitive answer regarding the code’s application to a global pandemic.

As many real estate agents may know, the California Association of Realtors (CAR) has released a form entitled “Coronavirus Addendum/Amendment” (“CVA”). The CVA has an explicit force majeure clause that may be used as part of your real estate contract. Considering the impact of COVID-19 on the economy and society in general, it might not be a bad idea to use the CVA.

Going forward, it’s important for everyone to consider using a force majeure clause in their contracts, at least for the foreseeable future of this pandemic. 

About Tim Burke

Tim is a licensed attorney in California and Nevada. He brings over 19 years of transactional and litigation experience to JohnHart. Prior to joining JohnHart, Tim was in private practice providing legal guidance to clients on Real Estate, financial, corporate, estate planning, and employment matters.

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