We’ve been getting a lot of questions about how COVID-19 is impacting our clients’ businesses. Today, let’s talk about something called “force majeure” and what it might mean for your business contract.
So what is force majeure? It’s basically a term in contract law and it can be used to excuse a party’s obligations under a contract. For a legal definition, the New York Court of Appeals (our highest court in New York) says that force majeure is an event that is “beyond the control of the parties that prevents performance under a contract and may excuse nonperformance.” Beardslee v. Inflection Energy, LLC, 25 N.Y.3d 150 (2015). These often are obvious events and sometimes called “acts of God,” like Superstorm Sandy—but they include manmade events, too, like acts or war, or an event like 9/11.
However they are caused, the result is the same: force majeure events unexpectedly prevent contracting parties from being able to perform under their contracts. For a contracting party to claim a force majeure event as an excuse for non-performance, the event must have been beyond the party’s control and not due to any fault or negligence by that party.
So how exactly does COVID-19 fit into the picture? Let’s say that you have a contract to produce specially-manufactured parts for a client by a certain date. Under ordinary circumstances, fulfilling this contract would not be an issue. But because of New York’s statewide shutdown of non-essential businesses during this pandemic, your business simply cannot physically meet that contractual obligation. It is not your fault, but a tough reality of the times. Almost certainly, you can argue this is a force majeure event. The important consideration is that the inability to perform has to be real. If in the example above the contracting party could meet its obligation—say by having a facility outside of New York manufacture the parts, but at an economic hardship—then that will not amount to a force majeure event. Keep in mind that financial difficulty in undertaking a performance is not the same as a true inability to perform.
Contracts typically include language addressing what happens when force majeure events happen called a “force majeure clause.” Often, this language is canned or boilerplate, but sometimes it can be fairly sophisticated and will set out how these events are handled. It simply depends on the contract—and there is no better time than now to look at your contract, if you think that COVID -19 will render its performance impossible. Once you know exactly what your contract says, it is time to consider and plan your next steps, which probably starts with seeing what kind of arrangements you can make with your contracting partner, but ultimately could include preparing yourself for a legal battle.
If you have questions about what your contract says, or what steps to take if you think force majeure may be an issue, we can help. Feel free to contact Timothy Lambrecht, Esq. at firstname.lastname@example.org or at (315)445-1700.