Supply shortages, stressed customers, government actions, and other disruptions during the COVID-19 crisis are affecting you. Your suppliers may be failing to deliver goods and services to you as promised. You may find it increasingly hard to meet your own contracts with your customers.
Businesses are now sending notices claiming force majeure to excuse performance, or claiming impossibility, impracticability or legal frustration as reasons to excuse performance.
If you are considering sending such a notice or if you receive such a notice, here are some suggestions on how to proceed. Because in this event, your business is entering an area where legal advice is valuable. Contact us if you feel the complexity or amount at risk warrants it.
- First, look at your legal paperwork
because force majeure depends on and varies widely with the
contract language. The essence of force majeure is events that are
beyond your control. Each circumstance needs a detailed look at the
contract, lease, purchase order, or other legal paperwork.
- What does the contract give as
examples of force majeure?
- "National Emergency", "Government action", or such may well be satisfied now by President Trump's declaration of national emergency and various state decrees;
- "Act of God" is more often thought of as physical damage from disasters or weather events but may be expanded given the magnitude of this pandemic so this reason needs careful analysis of the law;
- "Health emergencies" or "epidemics" or "disease" all seem applicable given the World Health Organization's determination that this is a "pandemic" and the multiple federal and state level disease-fighting actions
- How does the claimed force majeure cause the inability or serious hindrance to perform, not just a more time-consuming or expensive performance?
- What steps must the business take to mitigate the injury to the other party?
- What notice must be provided and when?
- What does the contract give as examples of force majeure?
- Second, keep records of how the force majeure impacts the business and the steps, such as searching for other sources of supply, you take to mitigate damage to you.
- Third, assess what the impact of a force majeure is under the contract. Sometimes it is just a delay in performance with a termination of the contract only in the event of a long delay.
Some states recognize defenses of impossibility, impracticability (UCC 2-615), or frustration. These defenses are different from force majeure and normally do not need to be mentioned in the contract to create a remedy. So especially if your contract is silent on force majeure, you'll need guidance on how to show these defenses are available to your business, a question which will vary state by state.
Butler Snow has experience in these areas and is ready to assist your response to any problem. Contact your Butler Snow attorney or respond to this email should you have questions or need assistance in preparing for a disruption to your business.
For information on how you should prepare your employees and workplace for Coronavirus, click here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.