Can Performance Be Excused Without a Force Majeure Clause and the Impact of California Civil Code Section 1511?
What happens if a contract does not include a Force Majeure provision? California Civil Code Section 1511 may provide some assistance. This statute provides, in relevant part, that performance of a contract may be excused if the performance is “prevented or delayed by an irresistible, superhuman cause.” This may provide some assistance in arguing in favor of excusing performance. But it is not without its own issues. So, the question is – does the COVID-19 pandemic and the resulting economic disruption constitute an “irresistible, superhuman cause”?
There is little case law in the United States that provides guidance on the scope of the phrase “irresistible, superhuman cause.” Courts in California, Kansas, Oklahoma, and North and South Dakota have held that “irresistible, superhuman cause” (or similar phrases) has the same legal meaning as an “act of God”. What qualifies as an act of God varies by state. For example, some states define an act of God as any “accident produced by physical causes which are irresistible or inevitable,” while others define it as “all misfortunes and accidents arising from inevitable necessity which human prudence could not foresee or prevent.”
Whether these definitions encompass pandemics or epidemics is uncertain. The last epidemic in the United States to cause mandatory quarantine was the 1918 influenza pandemic, commonly referred to as the Spanish Flu. That is likely why there are limited reported decisions on this topic. However, some examples of cases on point may be instructive and lend guidance.
In some courts a contracting party might not be excused from performance just because they, a portion of their workforce, or key leadership fall ill with COVID-19.
While COVID-19 must be considered an “irresistible” disease to be an act of God, not all diseases are treated equally. For example, a New Jersey court held that amputation of a limb resulting from diabetes was a foreseeable and predictable consequence of that disease and therefore did not constitute an act of God. The court focused on the predictability of the ultimate symptoms of the disease rather than the occurrence of the disease itself in determining whether the symptoms were an “irresistible, superhuman cause.”
Further, even if falling ill with COVID-19 is considered an act of God, a party’s failure to perform must be a direct result of the illness. For example, in a case before the Supreme Court of Oklahoma, a contracting party sought to be excused from performing under a contract after someone, whose cooperation was integral to performance on the contract, was diagnosed with a mental health illness. While the court considered the illness itself to be an act of God, it held that the contracting party could still perform without this specific person’s cooperation.
And in another case a contracting party might not be excused from performance as a result of governmental restrictions, such as the Stay at Home order in California and various counties that have adopted similar restrictions.
The recent governmental restrictions, including the Stay at Home order, are causing many businesses to cease operations. Whether businesses must continue performing their contractual obligations during these times is unclear. The few cases dating back to the 1918 Spanish Flu pandemic, which caused governmental restrictions and quarantines, reach contradictory conclusions on this point. For example, the Supreme Court in North Dakota determined that the pandemic itself was an act of God and that the compulsory closing of businesses and public services for quarantine were a direct result of an act of God. As a result, the court held that the employer who did not pay its employees during this time was excused from performance, i.e., issuing payroll. The Supreme Court of Illinois reached the opposite conclusion. It determined that the closure of business and public services as a result of the contagious disease was not an act of God because the employer knew that the government agencies had authority to shut down the facility and, thus, the employer should have included a provision in the contract explicitly excusing performance in the event of a government shutdown. Thus, the court held that the employer was obligated to pay its employees, despite the government quarantine restricting the employees from working.
What does this all mean?
Reconciling these legal issues is fact specific and intensive. It is imperative to review the terms of a contract to see if epidemics, pandemics, quarantines, or government shutdowns are referred to as an excuse from performance. If not, the next step is to determine whether the performance under the contract is in fact made impossible by the COVID-19 pandemic or its associated government restrictions. If so, then California Civil Code section 1511 may excuse the party’s failure to perform its contractual obligations. It is also imperative to review and understand the law of the specific jurisdiction in which an action may be brought. Choice of law provisions in contracts must be analyzed to make sure that the correct law is being applied to the interpretation of the agreement. And then it is entirely possible that there may be legislative intervention, but at this point it is unknown.
For more information or questions regarding Force Majeure and other assistance for your business, email firstname.lastname@example.org.