The Coronavirus and Force Majeure Clauses in Contracts – SALCINESLAW

With the Coronavirus (COVID-19) taking over the country and businesses, businesses are now seeking to determine whether they are obligated to perform under their contracts, or whether they can invoke a force majeure clause to excuse performance temporarily or even permanently.

Force Majeure Clauses Generally

Not all contracts contain force majeure clauses and even if they dont, there are still protections afforded by law. The force majeure clause is a contractual provision which excuses one or both parties’ performance obligations when circumstances arise which are beyond the parties’ control and make performance of the contract impractical or impossible.[1]

Force majeure events typically enumerated in contracts include:

  1. acts of God, such as severe acts of nature or weather events including floods, fires, earthquakes, hurricanes, or explosions;
  2. war, acts of terrorism, and epidemics;
  3. acts of governmental authorities such as expropriation, condemnation, and changes in laws and regulations;
  4. strikes and labor disputes; and
  5. certain accidents.[2] Economic hardship typically is not enough to qualify as a force majeure event on its own.[3]

Determining whether a force majeure clause can be invoked depends on the specific language of a contract. Generally, force majeure clauses are confined to situations of the kind or nature which limit damages in a case where the reasonable expectation of the parties and the performance of the contract have been frustrated by circumstances beyond the control of the parties.

State Specific Requirements for Force Majeure Clauses: Florida

The CDC defines an epidemic as an outbreak of disease that infects communities in one or more areas, and a pandemic is an epidemic which spreads across the globe. If a contract at issue lists epidemics or pandemics as a force majeure event, the claiming party could argue that the coronavirus qualifies in light of the fact that is has been officially declared a pandemic by World Health Organization.

If a force majeure clause does not list epidemic or pandemic as a triggering event, it is possible that the coronavirus could be covered as an act of governmental authority in some areas, given that many governments, including the United States government, have instituted lockdowns to prevent the spread of the coronavirus.

If a listed force majeure event occurs, however, there is still further analysis required to determine whether invocation will be successful.

Under Florida law, a party seeking to invoke a force majeure clause must show that the force majeure event was unforeseeable, and that the force majeure event occurred outside the party’s control. This means that the claiming party must show that the event could not have been prevented or overcome, and there additionally cannot be any fault or negligence on the part of the claiming party.

Some contracts additionally require that the claiming party give the other contractual parties notice before invoking a force majeure clause. If the claiming party does not give proper notice as set forth in the contract, it could preclude successful invocation of a force majeure clause.

Businesses seeking to invoke the force majeure clause of their contracts likely have a strong argument that the coronavirus outbreak is an unforeseen event, unless the parties entered into the contract after the outbreak of coronavirus. Whether businesses have also attempted to perform their contractual duties despite the coronavirus outbreak, and whether that is even required under a particular contract are questions that must be assessed on a case-by-case basis.

Other Options: Impossibility/Impracticability and Frustration of Purpose

If a party is unable to successfully utilize a force majeure clause to excuse performance during the coronavirus outbreak, or if a contract does not contain a force majeure clause, other options may still potentially be available to excuse performance, such as the defenses of impossibility and impracticability. The Uniform Commercial Code (UCC) provides that a seller is excused from performing under a contract when “performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.” The Restatement (Second) of Contracts defines impossibility as “not only strict impossibility but impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved.”

If a contract does not contain a force majeure clause, and an impossibility or impracticability defense fails, another possible defense for a party unable to fulfill its obligations under a contract due to the coronavirus is frustration of purpose. For the doctrine to apply, “the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense. ”Put differently, frustration of purpose occurs where “a change in circumstances makes one party’s performance virtually worthless to the other, frustrating his purpose in making the contract.” Business should be mindful, though, that economic hardship such as an increase in the cost of performing under a contract is not enough to assert a frustration of purpose defense.

Conclusion

The coronavirus is having a significant and harmful impact on businesses and their ability to perform under their contracts. However, whether a claiming party can successfully invoke a force majeure clause, an impossibility/impracticability defense, or a frustration of purpose defense in order to excuse performance due to the coronavirus is a fact intensive inquiry and must be assessed on a case-by-case basis. Contractual parties must look to the specific language of the contract, including the applicable law, to determine their likelihood of success.


At the Law Offices of Jacqueline A Salcines PA we are here to help. With over 21 years experience interpreting contracts and practicing business law. the best defense is to hire the right lawyer. Let our experience go to work for you. We can assist virtually, by phone, facetime or skype. Call or email us today.

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TEL 305.669.5280 EMAIL: J.SALCINES@SALCINESLAW.COM

Dealing with the current situation is hard enough on ourselves and our loved ones. But what if you entered into a contract, or are a landlord or tenant facing difficult uncertain times? Can you get out of the contract? Can your tenant? Can a seller or buyer? The question is, when It Comes to Contracts, is Coronavirus a ‘Force Majeure’?

Force Majeure typically refers to an “Act of God” such as a hurricane, terrorrism or other act, outside the control of the person, that prohibits the person legally bound under the contract to perform. Is the COVID-19 pandemic, legally speaking, an “act of God”?

Here’s a look at how Florida Courts may rule on real estate disputes that arise from transactions during this unprecedented time.

If intending to invoke a “force majeure” clause, a party is required to show a very specific and compelling reason why they can’t perform, as opposed to a more general sense that times are uncertain.

Since this is a first in history, and very new, it is a complicated question to answer. However, though not exactly on point, there is not an abundance of legal precedence to predict how Florida Courts may rule on disputes that arise from transactions during this time.

First of all, what is written into the contract does hold a lot of weight. If, for example, the Far/Bar As Is Residential Contract for Sale and Purchase or Residential Lease contains a force majeure clause, then that will control.

What is the legal definition of force majeure?

As written in the As Is Contract: Section 18(G) Force Majeure. Buyer or Seller shall not be required to perform any obligation under this Contract or be liable to each other for damages so long as performance or non-performance of the obligation, or the availability of services, insurance or required approvals essential to Closing, is disrupted, delayed, caused or prevented by Force Majeure. “Force Majeure” means: hurricanes, floods, extreme weather, earthquakes, fire, or other acts of God, unusual transportation delays, or wars, insurrections, or acts of terrorism, which, by exercise of reasonable diligent effort, the non-performing party is unable in whole or in part to prevent or overcome. All time periods, including Closing Date, will be extended a reasonable time up to 7 days after the Force Majeure no longer prevents performance under this Contract, provided, however, if such Force Majeure continues to prevent performance under this Contract more than 30 days beyond Closing Date, then either party may terminate this Contract by delivering written notice to the other and the Deposit shall be refunded to Buyer, thereby releasing Buyer and Seller from all further obligations under this Contract.

What does this clause do?

It provides an automatic extension that comes into play when a dramatic event prevents a party’s performance or closing from happening. It takes an unusual event to trigger this force majeure clause, as you can see from a few of the examples in the clause, such as hurricanes, acts of God, and acts of terrorism.

Once the clause is triggered, certain time periods (including the closing date, if applicable) will be extended for a reasonable time up to seven days after the force majeure no longer prevents performance. Parties should pay attention to the time in relation to the closing date, though, since either party may terminate the contract by delivering a written notice if force majeure continues to prevent performance more than 30 days beyond the closing date.

Are all force majeure clauses the same?

No.The specific terms can vary, which means every analysis must look at the specific words of the executed contract to see if they apply. It’s possible for the same exact facts to qualify for force majeure protection in one contract, but not another. For example, some force majeure clauses include epidemics and pandemics as covered events, while others do not.

Is the virus an “Act of God” as written in the clause above? Does this force majeure clause apply to COVID-19 related issues?

At this point, it is too novel and too new to tell. So frankly speaking, we don’t know yet how the Courts will interpret it.

Where does the Law Offices of Jacqueline A. Salcines PA Come In?

Myself and my team want you to know that we are here for you. Whether to interpret a contract, or the law, at the Law Offices of Jacqueline A. Salcines, PA we here virtually, to assist. In addition to reviewing contract for you virtually, we can initiate contact with the other party and send demand letters. We are open and here to serve the community.

Call or email us today. We are here to help. Contact attorney Jacqueline A. Salcines, Esq. today.

Jacqueline A. Salcines PA

Tel: 305 669 5280

Email: J.Salcines@Salcineslaw.com

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REAL ESTATE LAWYERS

In the midst of this crisis and the unknowns that lie ahead, many real estate buyers are looking to get out of real estate contracts. Many calls this week pertained to the clause in the real estate contract that is labeled “Force Majeure”. This term, translated means “superior force”, that is a force beyond your control, such as “hurricanes, floods, extreme weather, earthquakes, fire, or other acts of God, unusual transportation delays, or wars, insurrections, or acts of terrorism, which by exercise of reasonable diligent effort, the non-performing party is unable in whole or in part to prevent or overcome.”

Whether the current times call for this depends on your circumstance. Loss of jobs, loss of income, unexpected layoff or business closure could all qualify to get you out of a contract.

Contact us today to discuss your particular real estate transaction and issues to see if we can help. With over 20 years experience, we are here to help you navigate these stressful times.

Here by FaceTime, Skype, Phone and email, call us anytime.

TRUST | COMMITMENT | RESULTS

Jacqueline Salcines, Esq.

305 669 5280

J.Salcines@Salcineslaw.com