Should Your Contracts Anticipate Another Pandemic?

The widespread impact of the COVID-19 pandemic caused many businesses to evaluate whether they are obligated to perform under certain contracts, or whether they can invoke unique contract provisions to excuse a possible or likely failure to perform. While no business wants to consider a downturn due to another worldwide health or other catastrophe, the last several years have made clear it could happen, and there are ways to minimize losses.

Specifically, a “force majeure” clause is a contract provision that excuses a party’s performance of its obligations under the contract when certain circumstances arise beyond the party’s control, and making performance inadvisable, commercially impracticable, illegal, or impossible. These clauses vary in language and length, but many clauses include events like fire, war, unrest, epidemic or pandemic, famine, or otherwise “acts of God.”

There are examples of businesses seeking to excuse or delay performance due to COVID-19.  One such case was Pacific Collective, LLC v. ExxonMobil, in California, in which a developer asked the court to prevent ExxonMobil from selling a property to other buyers, claiming that California’s lockdown during the pandemic was an act of God that prevented the developer from completing the multi-million-dollar property acquisition.

A key Missouri case addressing the applicability of force majeure clauses is Clean Uniform Co. St. Louis v. Magic Touch Cleaning, Inc. The court in this case concluded that a force majeure clause that lists specific events that excuse performance and includes a general catch-all phrase will be construed narrowly. The Clean Uniform case illustrates that in Missouri, courts will not excuse performance through a force majeure clause if the clause is ambiguous and if the event was foreseeable but not included in the clause.  One conclusion to be reached from this case is that parties using force majeure clauses should itemize the specific, anticipated events that could excuse the parties’ performance, rather than relying on ambiguous or catch-all terms.

There are other principles of law that might also excuse a party’s performance under a contract under certain conditions.  These include the doctrines of impossibility, illegality or commercial frustration.  However, it is always advisable to draft specific language to address issues excusing performance rather than not including them in major contracts at all.

The ultimate question of whether a force majeure clause covers a specific situation depends on the language of the contract, and a court would likely take into consideration the surrounding circumstances, the pandemic or other event’s impact (if any) on performance, and the possibility of mitigating efforts to avoid non-performance.  This gives Missouri businesses incentive to consider implementing these clauses in critical contracts in order to best prepare for the worst.

Posted by Attorney Jeffrey R. Schmitt. Schmitt represents businesses and individuals in commercial litigation matters including banking and finance, real estate, condo and homeowners associations, professional liability defense, title disputes, transportation, and pension and retirement plans. 

Published in the November 2022 St. Louis Small Business Monthly.

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