Force Majeure in California: Does the COVID-19 Pandemic Qualify?
A Three Part Series
By Stan Gibson
Part 1 – What Constitutes a Force Majeure
The ongoing COVID-19 Pandemic is disrupting day-to-day operations, supply and delivery chains and general contractual obligations around the world and throughout California. Many companies and individuals are facing unprecedented situations and demands. In the midst of all this you may be wondering what effect, if any, the COVID-19 Pandemic will have on your, and other parties’, contractual obligations. You may have heard people throwing around the term “force majeure” as a reason for excusing performance or terminating a contract. But what does that term mean? And how does it work in California? The purpose of this series of articles is to answer these questions and more.
Although these are unprecedented times, the disruption caused by the COVID-19 Pandemic alone, may not be sufficient to excuse performance under a contract. Before making or responding to any claims of impossibility of performance due to the current situation you should carefully review the terms of your contract. Bear in mind that you, or another party, will not be excused from performance simply because performance is more difficult or expensive than anticipated. If faced with a claim of inability to perform by another party, you should ask yourself whether you are willing and able to continue performing your own contractual obligations before asserting that they are in breach. A party suing for breach of contract must be able to show that it was capable of holding up its end of the contract.
In addition, if you believe that you are not able to comply with contractual obligations, you should be aware that the party may treat your claim as an anticipatory breach and terminate your contract. You should also evaluate whether performance is possible, and whether there were factors within your control that contributed to the difficulty or deficiency of your potential performance. If so, it may not be in your best interest to make a claim of force majeure.
In Part One of this article we will provide an overview of force majeure clauses, when events beyond a party’s control excuse performance, in Part Two we will address how a claim of force majeure is asserted and when a party remains obligated to perform under existing contracts, finally, in Part Three we will provide guidance as to what to do when faced with a claim a party will be unable to meet its contractual obligations due to the current pandemic or whether you should consider making such a claim.
What is a Force Majeure
A “force majeure” clause is a provision in a contract that excuses performance due to events beyond a party’s control. Also known as “Acts of God” or “vis major” clauses, the purpose of these provisions is to allow parties to protect themselves when forces beyond their control render performance impossible.
The type of event that may constitute a force majeure usually depends upon the specific language in the parties’ contract, but generally the test is “whether there was such an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise of prudence, diligence and care.” [i] In other words, an excusable event is one from which neither party could have taken measures to protect themselves.[ii]
This common law concept is also codified in California Civil Code Section 1511 entitled “Causes excusing performance.” Under this code section, a party’s performance may be excused, in whole or in part, “when it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary.”[iii] Thus, even in the absence of a specific force majeure provision, a party may be able to rely upon section 1511 to excuse performance.
When Can Force Majeure Be Used to Excuse Performance
As a procedural matter, force majeure is an affirmative defense. This means that any party claiming force majeure bears the burden to show that the event qualified as a force majeure event as defined by the contract or under the law. In practical terms, this means that a party cannot assume that an extreme event, such as the current COVID-19 pandemic, will automatically excuse their performance. Rather, a party intending to rely on a force majeure clause must be able to demonstrate that its inability or failure to perform resulted from events beyond its control and was not attributable to its own actions or negligence. A force majeure clause cannot “excuse [a party] from the consequences of the risk [it] expressly assumed.”[iv]
- Performance Must be Impossible or Extremely and Unreasonably DifficultA force majeure clause is not intended to “buffer a party against the normal risks of a contract.”[v]In most cases, a party will only be able to rely on a force majeure clause where it can demonstrate that as a result of the triggering event it would be impossible to perform as required under the contract. “Facts which may make performance more difficult or costly than contemplated when the agreement was executed do not constitute impossibility.”[vi] Thus, even under extreme circumstances, courts are unlikely to be persuaded that a party is excused simply because performance has become more expensive or inconvenient.[vii]
In Butler, for example, the defendant, who had agreed to commence drilling within six months under an oil and gas lease, attempted to excuse his failure to do so by claiming that “he was unable to comply with the drilling schedule because of inability to procure the required well casing due to a steel strike; and that under a force majeure clause in the lease, the existing conditions excused him from performance of his obligation to commence drilling or pay rental pending his reassignment of the lease.”[viii] The California Supreme Court rejected this argument reasoning that a greater than anticipated expense would not excuse the defendant.[ix] A force majeure clause will only excuse performance where the defendant can demonstrate “extreme and unreasonable difficulty, expense, injury or loss involved.”[x]
This is especially true where the nature of the contract inherently contemplates such risks. For example, a party to a “fixed price” contract cannot claim force majeure due to an increase in expense as this is a “normal risk” associated with this type of contract. Similarly, a party to a contract to sell a product cannot claim force majeure merely because of an economic downturn, as this is “a normal risk commonly inherent in many business transactions. . . .”[xi]
In addition, a party must be able to demonstrate that its performance is impracticable. If, for example, it is unclear the extent to which the triggering event has impacted a party’s ability to perform, claiming force majeure will likely be premature.[xii] Similarly subsequent performance after claiming impossibility will undercut and likely waive the argument that a force majeure event rendered performance impossible.[xiii]
In Warner Brothers Pictures Inc., Warner Brothers attempted to rely on a strike by the Writer’s guild of America as an excuse to stop paying James Bumgarner (better known as James Garner), his weekly salary.[xiv] Warner Brothers argued that discontinuing payment was warranted as the strike constituted a triggering event within the force majeure clause of the parties’ contract.[xv] As a result of the strike Warner was “prevented and materially hampered and interrupted in the preparation, production, and completion of motion pictures;” and that production of Mr. Garner’s television show was “suspended, interrupted, and postponed by reason of said strike.”[xvi] In reality, the evidence showed that at all times during the strike there was activity at the studio including “some preparation, production or completion of motion pictures.”[xvii] In addition, at the time Warner Brothers attempted to invoke the force majeure clause in March of 1960 production on the prior season was already complete and another episode was not scheduled to air until September 25, 1960.[xviii] Warner Brothers’ executives were aware that production for the following season would not begin until May, and Warner Brothers maintained several writers on staff who could have developed in-progress scripts if the strike was not over by that time.[xix] Accordingly Warner Brothers’ invocation of the force majeure clause in March was premature and improper.[xx]
By contrast, in Pacific Vegetable Oil Corp., war qualified as a force majeure event where it resulted in delay in the movement of vessels which ultimately resulted in a seller being unable to deliver a shipment of copra as promised.[xxi] There the seller had agreed to provide buyer with two shipments of copra from the Fiji Islands between January and February of 1942.[xxii] As a result of the United States’ entry into World War II in December of 1941, the seller was unable to obtain an export permit for shipment into the United States and had been previously delayed due to repairs and war conditions.[xxiii] These circumstances rendered the seller’s failure to perform excusable.[xxiv]
In sum, an increase in expense or difficulty alone is likely insufficient to excuse performance under a force majeure clause.
In Part Two of this series we will address the procedural ins and outs of asserting force majeure and when a party’s own actions will not excuse performance under a force majeure clause.
[i] See Pacific Vegetable Oil Corp. v. C.S.T. Limited, 29 Cal.2d 228 (1946).
[ii] See London Guarantee & Accident Co. v. Industrial Accident Commission, 202 Cal. 239 (1927) (A force majeure is “an act of nature which implies entire exclusion of all human agency”).
[iii] Cal. Civ. Code Section 1511(2).
[iv] Horsemen’s Benevolent & Protective Ass’n v. Valley Racing Ass’n, 4 Cal.App.4th 1538, 1565 (1992).
[v] Horsemen’s Benevolent & Protective Ass’n, 4 Cal.App.4th at 1565.
[vi] California Bio-Mass v. City of San Bernardino, No. E037065, 2006 WL 2949565, at *1 (Cal.Ct.App. Oct 17, 2006).
[vii] See, e.g., OWBR LLC v. Clear Channel Commc’ns, Inc., 266 F. Supp. 2d 1214, 1223 (D. Haw. 2003) (“a force majeure clause does not excuse performance for economic inadvisability, even when the economic conditions are the product of a force majeure event”) (citing Butler v. Nepple, 54 Cal.2d 589 (1960)).
[viii] Butler, 54 Cal.2d at 593.
[ix] Id. at 598-99.
[xi] Citizens of Humanity LLC v. Caitac Intern Inc., No. B1215232, 2010 WL 3007771, at *14 (Cal. Ct. App. Aug 3, 2010).
[xii] Warner Brothers Pictures Inc. v. James Bumgarner, 197 Cal.App.2d 331 (1961).
[xiii] See Sorbo v. Universal City Studios, LLLP, L.P., No. B205936, 2009 WL 931688, at *4 -5 (Cal. Ct. App. Apr. 8, 2009) (actor’s claimed inability to perform in a television series due to health reasons was not supported where he subsequently successfully completed the final two seasons of the show).
[xiv] 197 Cal.App.2d at 334-36.
[xv] Id. at 335.
[xvi] Id. at 336-37.
[xvii] Id. at 342.
[xviii] Id. at 340.
[xix] Id. at 344-46.
[xx] Id. at 334-50.
[xxi] 29 Cal.2d 228.
[xxii] Id. at 229-231.
[xxiii] Id. at 230-31.
[xxiv] Id. at 241-42.