The legal concept of “force majeure” has vaulted from near-obscurity to intense scrutiny, all due to the novel coronavirus. Here is a general outline of how it applies to leases, purchase agreements and other contracts in today’s world.
Force Majeure: What is It? How Does It Apply to Contracts?
Generally speaking, a “force majeure” event is an unforeseeable event, often referred to as an “act of God” or an event “beyond the control” of a party, that prevents or delays a party from performing an obligation under a contract. The question is whether, under the law, that delay or non-performance will be extended or excused.
Louisiana has a “default” rule, discussed below, but that rule only applies if the contract itself does not have a force majeure provision. Many (if not most) contracts do. That is the place to start. Check the contract.
If the contract has a force majeure provision, first check to see if it contains any exclusions. Those items will be carved out of the force majeure provision, so that even if it applies, those obligations will not be extended or excused. Very often there will be an exclusion for monetary obligations, such as the payment of rent. Courts will generally uphold these exclusions, because they express the agreement between the parties.
Also, remember to read the entire contract. There may be other provisions that govern specific circumstances that would entitle a party to receive an extension of time or complete relief from its non-performance of a particular obligation.
When applying the force majeure provision, attempt to specifically identify the obligation that is involved, the event that may constitute a force majeure occurrence, and whether the impact of that event has the degree of adverse impact on a party’s performance that the contractual provision requires. If all of these requirements are met, then pay particular attention to the remedy provided by the force majeure provision – is it an extension of time or is it complete relief from an obligation?
Default Rules Under Louisiana Law for Contracts Without a Force Majeure
If there is no force majeure provision in the contract, the default rules under Louisiana law, Civil Code Articles 1873 – 1878 will apply. Louisiana’s default rule requires that the event be “fortuitous” and unforeseeable, and that it render performance by a party to be “impossible.” This is a high bar to meet.
Every case is different, and every case depends heavily on its own particular facts and circumstances. The “equity” of a situation also impacts a court’s decision in these cases, so you will want to pay particular attention to the details of a party’s business operation and how it was impacted by the force majeure event, to alternative measures that were available to a party to help it avoid the consequences of the coronavirus and the resulting governmental orders, and to the steps that a party took to try to mitigate the adverse consequences of those events before seeking relief on account of force majeure.