Covid 19 Update – Force Majeure Clauses

Covid 19 Update – Force Majeure Clauses

What is a Force Majeure Clause?

The recent public health and economic conditions have caused massive disruptions in supply chains and labor shortages. As a result, many companies are now in the position where they can no longer fulfill their contractual obligations. General contract principles and the Uniform Commercial Code may excuse a party’s failure to timely deliver goods if unforeseen circumstances make it impossible for a party to perform its obligations, but most contracts contain a section referred to as force majuere clause that explicitly allocates the risk involving the occurrence of certain specified events, regardless of their foreseeability.

Typical Components of a Force Majeure clause:

Force Majeure clauses typically contain three clauses:

1. A statement that the obligor is excused from certain obligations if specified events occur. Frequently, timely deliver of goods or services may be excused under a force majeure clause, but certain other obligations, such as the duty to make payments, may not be excused.

2. A list of specified force majeure events. Typical force majeure events include natural disasters, war, terrorist acts, government actions, and in certain contracts, public health emergencies, such as epidemics and pandemics.

3. A statement of the impacted party’s obligations. These often include an obligation to notify the other party of the occurrence of the force majeure event and to mitigate the impact of the force majeure clause.

In addition some contracts will contain remedies for the other party in the event of the other party triggers the force majeure clause. For example, the party may have the right to terminate the contract if the force majeure event remains in effect for a certain period of time.

Force Majeure Clauses and Covid-19

Under the vast majority of force majeure clauses, Covid-19 will constitute a force majeure event. Even if the clause does not explicitly reference epidemic or pandemic, various federal, state and local government responses to Covid-19 may constitute a separate force majeure event.

If you need assistance navigating your company’s contractual obligations, please contact us at Douglas Park Law.

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