Year-End Thoughts on Force Majeure, Where Contracts and Apocalypses Meet

Issue January/February 2021 February 2021 By Derek Domian
Complex Commercial Litigation Section Review
Article Picture
Derek Domian

“Force majeure” — French for “is this year over yet?” — exploded onto the legal scene in 2020. Formerly the eye-glazing boilerplate of commercial contracts — as if this would ever happen — force majeure has become a deciding factor on whether and how contractual relationships will endure in a pandemic. Many of us have blown the dust off of force majeure clauses, scrutinized their every word and reckoned with their real-word implications. So, with 2020 in the books, what have we learned? In short, these clauses are no panacea. They have their limits. To understand their limits, we need to understand their origin.

I. A Brief History: Civil Law, Common Law, Contract

We start where many brief histories do, with Napoleon. The Napoleonic Code codified the concept of force majeure, literally “superior force,” and incorporated this concept into contracts. Contracting parties did not need to worry about spelling out this relief themselves. Not surprisingly, one of the earliest discussions of force majeure by the U.S. Supreme Court came in the context of the Louisiana Code, a descendent of the Napoleonic Code.1 The question in that case was whether the code’s concept of “cas fortuit ou force majeure” excused a lessee of a sugar plantation from its obligations under a lease after the Mississippi River reclaimed much of the plantation. The Supreme Court held that this flood proved to be a “fortuitous event of irresistible force” that relieved the lessee of its lease obligations. In doing so, the Supreme Court distinguished the gentler civil law from the harsher common law, seemingly indifferent to the brutal world that contracting parties inhabit.

Lord Blackwell would soften the common law when he ruled in his landmark decision that “in contracts in which the performance depends on the continued existence of a given person or thing, a condition is implied that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance.”2 At last, the common law acknowledged that such matters as death and destruction could impact contracts. Thus, the doctrines of “impossibility” and “frustration of purposes” evolved into their current state as formulated in Sections 261 and 265 of the Restatement (Second) of Contracts, respectively. These doctrines relieve some of the harshness of the common law, but its stubbornness persists. Impossibility demands substantially more than inconvenience, especially financial inconvenience. In Massachusetts, “[t]he type of circumstances envisioned by courts when applying the doctrine of impossibility generally involve extreme or unreasonable difficulty or expense that make it virtually, if not scientifically, impossible for a party to perform its obligations under a contract.”3 Frustration of purpose demands more than the dashed expectations of a single party. The frustration must destroy the essential purpose of the contact.

If impossibility and frustration of purpose sprouted up as light versions of the civil law concept of force majeure, force majeure clauses responded to the limitations of these common law doctrines. Parties took it upon themselves to define the events that would excuse them from their contractual duties. While informed by common law notions of impossibility and frustration of purpose, force majeure clauses are not limited by them. Living and breathing people know best the worlds they inhabit and the risks they are willing and unwilling to assume.

The roots of force majeure highlight two important lessons. First, force majeure clauses are creatures of contract and, as such, the language used by parties matters. Precision in drafting is crucial. Second, as much as they are contractual efforts to escape the pull of the common law, the common law continues to exert an influence over force majeure clauses. These clauses define an exception to the normal strict liability of contractual performance. Parties should not expect this exception to be construed generously.

II. Force Majeure Clauses Dissected

Force majeure clauses have two main features: they define what constitutes a force majeure event, or the cause; and they define the relief made available by a force majeure event, or the effect. As a cause-and-effect clause, there is also a causal requirement. The verbs used in the clause — delayed, prevented, etc. — will define the required causal showing.

When we all went running for our force majeure clauses, the very first thing we looked for was the word “pandemic.” Many of us did not find this word. Some found close approximations — plague and pestilence, for example, in contracts apparently drafted by Middle Age historians or excessively somber parties. Others found catchall phrases like “Acts of God” or “events beyond the reasonable control of the parties.” But before we had to trace the etymological roots of each noun found in the laundry list of force majeure events, state and local governments began passing sweeping orders closing businesses and offices, freezing construction, banning travel, ordering people to stay home, etc. Whether or not a force majeure clause contained the word pandemic became less important when it did contain more prevalent language concerning governmental orders. The intervention of government into daily and commercial life became the force majeure event.

When it comes to the definitional component of force majeure clauses, therefore, we have learned a few things. First, we should be deliberate and precise about how we define force majeure events. As the fossilized residue of the worst fears of past generations, these clauses need a thoughtful update. Second, we should be careful about relying on catchall phrases. The Latin ejusdem generis — “of the same kind” — works to limit catchall phrases to the same kind or class of events as those specifically enumerated. Even in jurisdictions that do not strictly apply this rule of construction, we should not expect a generous reading of force majeure clauses and therefore should not expect to find in “Acts of God” or “other causes” what we cannot find in the enumerated causes. Third, defining force majeure events in terms of the effects of more abstract occurrences like “pandemics” — e.g., travel restrictions, governmental restrictions, construction moratoria — will help ground these clauses in the immediate and practical problems affecting performance and thus establish a clearer causal nexus between the force majeure event and the relief sought.

Indeed, the battleground these days is not whether a force majeure event has occurred, but whether it should relieve a particular obligation. The latter calls into question the scope and nature of the relief made available by a force majeure clause. Regarding scope, the common law has reared its head and driven a wedge between an obligation to do something and an obligation to pay something. Force majeure clauses more readily excuse the performance obligation versus the payment obligation. This is because the common law notion of impossibility is not really moved by performances that have become more expensive or less economically desirable. Impossibility requires something approaching an absolute hindrance to performance. Unless the banking system has crashed, a party can cut checks and wire money, even in a pandemic. On the other hand, a construction moratorium makes it impossible to perform construction work, and retail and restaurant closures make it impossible for retailers and restaurants to operate. Thus, a force majeure clause in a commercial lease might excuse a tenant’s failure to continuously operate, but not its failure to pay rent.

Regarding the nature of relief, there is a big difference between excusing and postponing an obligation to perform. Most force majeure clauses do not cancel the obligation or give the party invoking force majeure the right to terminate the contract. Rather, they provide a temporary freeze of the obligation due — sometimes delimited by a notice requirement and/or stated period of time or deadline — that either becomes unfrozen when the force majeure event has abated or provides for a reorganization of the relationship, including termination, if the freeze persists beyond a stated deadline. While many parties will be focused on sharpening the definition of a force majeure event, they should pay at least equal attention to the effect of that event on their contractual undertaking.

III. Force Majeure Alternatives

Transactional lawyers will be focused on breathing new life into these fossilized clauses so that they better respond to the new world that 2020 heaved us into. Litigators will have to make do with the fossils they have been handed. As litigators battle over the limits of force majeure clauses, are there other claims, not so limited, to be made or defended? Given their close ancestry, impossibility and frustration of purpose are often invoked alongside force majeure. Together, they have formed the trident wielded in litigation and pre-litigation skirmishing over the enforceability of contractual obligations. A fulsome discussion of these common law doctrines is beyond the reach of this article. But we should spotlight an important feature of the intersection of these doctrines with force majeure clauses. The common law doctrines rely on an element of unforeseeabilty. As background rules for allocating unanticipated risks, they have little room to operate where the parties have already allocated risks in their contracts. A force majeure clause is an explicit allocation of risk by contracting parties. If the parties allocated the risk of a pandemic or governmental intervention in their force majeure clause by stipulating, for example, that in no event would either party ever be relieved of a financial obligation, an appeal to common law doctrines to claim that relief should have little chance of prevailing.

We can expect the events of 2020 to have a lasting impact on force majeure clauses. They have demanded the attention of parties, lawyers and courts alike. As we turn the corner from 2020 into 2021, let us hope that we are one trying year closer to these clauses turning back into the eye-glazing, inconsequential, French they used to be. 

Derek Domian is a business and real estate litigator with the firm Goulston & Storrs PC. He chairs the Massachusetts Bar Association’s Complex Commercial Litigation
Section.
                                                      

1 Viterbo v. Friendlander, 120 U.S. 707 (1887).

Taylor v. Coldwell, EWHC QB J1, (1863).

3 Gurwitz v. Mercantile/Image Press Inc., 2006 WL 1646144 (Mass. Super. May 15, 2016).