I may hire a local restaurant to host my firm’s spring staff party. However, due to the ban on restaurants serving groups of people, the restaurant is legally prohibited from carrying out its end of the deal. The restaurant is in a tough spot. The restaurant is challenged financially, especially if it has to pay me for the damage caused by it not serving my spring staff party.
When someone has an obligation in a contract and that someone is precluded from carrying it out due to an act of God, the legal doctrine that may provide relief is “force majeure.” Force majeure literally means an act of nature (like flood or drought) or an act of people (like riot or war) that is both not anticipated and not able to be controlled.
The implications of COVID-19 has likely already caused and will certainly cause some people to not honor certain contracts due to force majeure (physical inability due to unforeseen and uncontrollable circumstances) stemming from COVID-19.
The unforeseen and uncontrollable situation created by COVID-19 and the government’s response to the same is particularly applicable now due to the extraordinary (war-time-like) steps taken by local governments to infringe upon liberties that are not typically infringed upon except in wartime.
For instance, during the Civil War, President Lincoln temporarily suspended the right of habeas corpus.
Comparatively, our current government is ordering limits on our rights to assemble (often called the right to associate). This is in clear violation of the First Amendment’s prohibition on such orders. However, in times of war, severe calamity or public safety, courts have granted executive branches of government very limited immunity to override certain Constitutional rights, but only for very short periods of time and for very, very important reasons.
Most contracts of any sophistication (i.e. most contracts between companies involving goods or services that are significant in size) will include provisions that essentially say, “If the world falls apart for some unforeseen reason that we cannot control before the goods or services are provided, this is how we will handle that situation.” Thus, if a contract is breached due to force majeure, the contract’s force majeure clause will govern how the situation will be resolved.
Without a clause in a contract regarding force majeure resolution, a court may forgive a party for its obligation in a contract when an unforeseen and uncontrollable act of God precludes performance.
To ensure that force majeure is not abused in our legal system, courts scrutinize the specific facts of each situation. For example, I am often asked why employees who must come to work every day may still be required to come to work on winter days when the local Sheriff has declared a Level 3 snow emergency. Snow, and particularly excessive snow and ice, is an act of God. However, rough travel days during our winters is known to happen sometimes, and it is therefore foreseeable and not an excuse under force majeure to violate an obligation to go to work.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.