We May Soon Find Out What “Force Majeure” Means
I had been pondering a new post to my law firm’s blog, focused on a traditional real estate topic. Now, of course, we are way beyond “traditional” as governments, companies and the public at large struggle to respond in a coherent way to a relentless viral invasion. Members of our firm have been pursuing various regulatory, legislative and political strategies to protect our clients’ businesses, while being mindful of the public health implications of doing so. We anticipate a “shelter in place” order from Gov. Tim Walz could issue any day based on the actions being taken in recent days. This will place a severe restraint on the economy and our lives as we used to know it. At least for now.
However, even when the virus risk begins to disappear (and it will, we are told), the ripple-effect of the rapid curtailment of the economy will continue for some time. As lawyers, we routinely review agreements with an eye toward establishing clear terms and conditions governing the conduct of the parties. We pay special attention to the terms governing the circumstance in which the one party is not performing. One of these terms is referred to as “force majeure.” While fancy-sounding, the gist is that there are some things that are beyond the control or even the expectations of the parties such that reasonable performance of the contract can be suspended or even terminated. Typically, the contractual definition of the provision includes war, natural disaster or similar “acts of God” manifestations. In my professional experience, I’ve never seen this provision invoked or enforced; that’s about to change.
While there will undoubtedly be many valid circumstances under which force majeure will be used to terminate or suspend a contract, the worry is that this provision, backed up by a worldwide health and financial crisis, will be used to avoid contracts that can and should remain in effect. I believe the vast majority of businesspeople will, under the circumstances, do all they can to help a business customer or consumer manage their way through the current situation. Those conversations undoubtedly already have begun. The most critical factor in this conversation will be the duration and severity of the global downturn; notwithstanding the U.S. economy seemed to be thriving, it is not possible for many companies to simply throw a switch and magically return to the days before the virus erupted. The bad actors, including those seeking unfair advantage, will make this more challenging. So, the implications of the present crisis will be far-reaching and possibly long-standing; I’m betting on the positive forces of human nature, including instincts for survival, to see us through to the other side. Stay safe.