Tom Perkins
Attorney at Law
Force Majeure (March 2020)
In the midst of a once-a-century pandemic and economic gut punch, every business is prioritizing and evaluating human resources obligations, customer service needs, and vendor management. In these unprecedented times, it is necessary to review contract provisions that have long been relegated to the role of boilerplate. Specifically, “force majeure” is taking center stage. As a refresher, “force majeure” contract provisions are intended to provide relief for either or both parties in the event that something beyond their control intervenes to stymie the goal of the contract. While the phrase “force majeure clause” is a shorthand reference to this kind of provision, there is no real standard or universal definition. According to Black’s Law Dictionary (9th Ed.), a “force majeure clause” is a “contractual provision allocating the risk of loss if performance becomes impossible or impracticable, esp. as a result of an event or effect that the parties could not have anticipated or controlled.” Historically, it is associated with cataclysmic events such as natural disasters, wars, industry nationalization, new government regulation, or generally situations beyond the control of either party. But, ultimately, the exact definition of a “force majeure” event is a matter of definition within the contract itself. Each contract may define what constitutes such an event and the effect such an event would have on the obligations of the parties. For instance, a carveout in a lease may be that the “force majeure clause” would not apply to the payment of rent. This carveout would protect the landlord’s revenue stream, regardless whether the mall in which the tenant operates lacks customers. There may also be notice requirements; a party to the contract may be required to provide notice to the other party if it appears that the force majeure provision will be triggered. This gives the parties an opportunity to assess the validity of the force majeure event and develop alternative sources of product, raw materials, or vendors. Depending on your location, there are various levels of federal, state, and local orders imposing “self-quarantine” and “social distancing” limitations. Even in the absence of those restraints, the nature of the current pandemic forces people to re-evaluate their levels of interaction. These influences directly translate to a loss of efficiency and revenue that can make the difference between meeting contractual obligations or defaulting. A legal professional with experience in litigation, business operations and transactions is best suited to review the contract provisions that will help define the commercial relationships as we move through the ripples of this pandemic.
