Force majeure is a French term that means “superior force.” A force majeure clause is a negotiated contract provision that addresses what will happen if circumstances beyond the parties’ control affect their ability to complete their contractual obligations. This provision can be applied to manmade circumstances (such as war, riots, and strikes) or acts of god (such as droughts and natural disasters. However: we are currently facing circumstances never before seen in our lifetimes. It is difficult to know whether a force majeure clause will apply to circumstances caused by the COVID-19 pandemic.
Will Force Majeure Clauses Excuse Contractual Obligations During the Coronavirus Pandemic?
A force majeure clause usually applies when the circumstances have made a party’s performance under the contract either inadvisable, impractical, impossible, or illegal. The coronavirus may indeed render it inadvisable or even illegal to perform your contractual obligations. Executive orders have prevented businesses from fully opening, and some businesses remain closed altogether. If a contract required these business owners to fully open, that would be illegal. A force majeure clause would excuse contractual obligations under these circumstances.
But many business owners find that it is not practical to fulfill their contractual obligations, even if it is lawful to do so. Consider the restaurant owner who can only offer takeout or delivery service. This will limit her orders, and she likely will not need the full deliveries from her vendors – even if it is legal for her to offer some food service. In order for a force majeure clause to apply to this situation, it would have to specifically address “impractical” situations.
It is very unlikely that any force majeure clause executed prior to 2020 would specifically refer to performance that has been impeded by the coronavirus. Because of this, it is usually not entirely certain if and how a force majeure clause will apply. But even when these clauses do not apply, business owners have other options for resolving their contractual disputes.
Other Options For Resolving Contractual Disputes Related to COVID-19
The best option for resolving any legal dispute is to attempt to negotiate with the other party. This saves the time and expense of litigation. The coronavirus has halted California’s court system to a near-halt, with only emergency cases being heard. This has created a backlog that will take months (or perhaps even years) to resolve. It could be a long time before anyone is able to get before a judge to resolve a contract dispute.
More importantly, business is based on relationships. If a business owner can negotiate a fair resolution with vendors or clients, this will keep the relationship intact for future business. It might be as simple as accepting a late delivery or reduced production order. Showing flexibility will help assure those with whom you do business that you are a capable business owner who can adapt to challenging circumstances.
The Right Contract Lawyers For Silicon Valley Business Owners
The skilled Silicon Valley business lawyers at Structure Law Group have years of experience in drafting, negotiating, and enforcing business contracts. They can help you understand your contractual rights and obligations under these challenging times we live in. Call (408) 441-7500 or visit our website to schedule a consultation.