Law in the Time of Corona: Force Majeure During an Outbreak of Cancellations
I’ve been receiving queries lately from my clients regarding their obligations under a contract that now cannot be performed due to the disruptions caused by COVID-19. The inability to perform for my clients used to be infrequent to never, but in this time of government mandated restrictions on gatherings, events and travel, almost everyone is experiencing some kind of cancellation or termination of an event, whether it’s a wedding, a seminar, workplace event or any gathering. We’re all also experiencing the cancellation of services or the delivery of goods. In the past, many of these types of events and arrangements typically occurred without incident, and lawyers like me would be subject to tongue-in-cheek criticism for making our clients’ documents “too long” (and having the audacity to bill for it).
How It All Starts
When an event or service is cancelled or terminated for reasons outside the reasonable control of the parties, what happens regarding the parties’ legal obligations? Does the paying party have to pay for an event that never happened? Do you pay your vendors when you don’t need their services? We attorneys typically use earthquakes (in California) and floods and strikes and – since 9/11 – terrorist attacks, as some of the reasons listed in a Force Majeure clause for parties to be excused from performing without being subject to a lawsuit for breach of contract. These events are called events of Force Majeure, an event which is outside the reasonable control of the party obligated to perform. This can be one of the “boilerplate” provisions you might experience in a contract.
Force Majeure – To The Rescue?
When invoked, Force Majeure can excuse a party from having to perform without the risk of being sued for breach of contract. What some folks may not understand is what happens when a party is excused from performing . . . do they, for example, still get paid even though they didn’t perform? That’s an important question, because if you still want to get paid as a vendor/provider, then you should say so in your contract, since the party owing you will argue that, absent the service, they don’t need to pay you.
Conversely, if you’re the paying party, you’ll want to negotiate for a Force Majeure clause that doesn’t have any payment contingencies; that is, if your vendor wants a Force Majeure clause, then you might want to ask for assurance that you get your money back, or are excused from making any more payments where the delivery of goods and services are cancelled. Ultimately, the paying party will likely end up having to pay something because the party providing the goods or services has already taken action or worked on behalf of the paying party. This type of back and forth can result in an outcome that’s fair to both parties, but the contract does need to provide for it.
So, the next time you sign a contract, be sure it contains a Force Majeure provision, especially if you’re the party providing the goods or services. And if you still want to get paid (if even partially) even though you couldn’t perform, you need to negotiate for that and write that into your contract. And if you want your money back as the end customer, you’ll need to negotiate for that as well.
The law concerning Force Majeure is complicated, and beyond the scope of this simple reminder. Please consult with your attorney for further guidance.
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