In the global economy of today, the COVID-19 pandemic has quickly affected manufacturing and supply chain creating issues from fulfilling labor, maintaining shipments, obtaining raw materials and handling the health and well-being of personnel. Indeed, the term force majeure term has become commonplace in the manufacturing industry due to these issues. The expression refers to an unforeseeable circumstance that prevents the fulfillment of a contractual obligation. A typical example is an earthquake, a war or other “act of God” beyond a parties’ control that prevents, and excuses, contractual performance. However, whether any particular circumstance amounts to force majeure requires consideration of the applicable terms of a contract as well as applicable contract principles.
An analysis of a potential force majeure relating to COVID-19 should include whether the applicable contract contains a force majeure clause and whether it defines or limits scenarios relating to health, safety and government regulations. In the absence of a force majeure clause in a contract or if it does not address the circumstances that effect the particular issue, parties must look to the applicable law. For example, in contracts involving the sale of goods, the Uniform Commercial Code Section 2-615 provides principles on impossibility and impracticability of performance that will apply when there are gaps in a contract. The UCC adopts many common law principles. And for other types of contracts, applicable common-law doctrines of impossibility, impracticality, and frustration of purpose may apply, even if force majeure does not.
Depending on particular circumstances of the issues preventing fulfillment of a contractual obligation, force majeure or other applicable contract principles may apply. Whether an obstacle to performance amounts to force majeure will also depend on the directness of its connection to the COVID-19 pandemic. Regardless, a true force majeure, or other similar defense, will not necessarily excuse all performance. It may extend deadlines or allow partial performance. Furthermore, foreseeability is usually a factor for force majeure. What is foreseeable today, may be different than what was foreseeable two months prior. Thus, these matters are time-sensitive. A careful analysis of the circumstances and contract law is required to determine applicability of force majeure.