March 31, 2020

Reasonable Control Requirement

California courts will only excuse performance if the Force Majeure event is “beyond the control” of a party even when the event is explicitly referenced in the Force Majeure provision.  For example, in Nissho-Iwai Co., Ltd. V. Occidental Crude Sales, 79 F.2d 1530 (5th Cir. 1984) (interpreting California law), a California court refused to excuse an oil producer from delivering oil during a national embargo, because the embargo was caused by the company’s refusal to pay a fee.

Further, even if a specified Force Majeure event occurs, the non-performing party must make a “reasonable” effort to avoid the consequence of the event; that is, to perform.  For example, in Oosten v. Hay Haulers Dairy Emp. & Helpers Union, 45 Cal. 2d 784 (1955), a court determined that a creamery that refused to purchase milk from a farmer during a strike could have made better efforts to either end the strike or make arrangements to accept delivery.  The court held the creamery liable for breaching the purchase agreement, even though the strike increased the cost for the creamery to complete the purchase.  A similar outcome was reached in Butler v. Nepple, 54 Cal. 2d 589 (1960), where the cost of drilling supplies increased as a result of a strike, an oil company claimed that the strike was a Force Majeure event preventing it from performing.  A California court determined that, even though a strike was explicitly referenced in the Force Majeure provision, the oil company had not provided enough evidence that the increase in the cost of the supplies was unreasonable, and the oil company was held liable for breach of contract.

Courts will also limit the scope of a Force Majeure provision if at least some performance is possible.  In Warner Bros. Pictures, Inc. v. Baumgarner, 197 Cal. App. 2d 331 (1961), a movie studio attempted to cancel an entire talent contract because of an ongoing writer’s strike.  Even though the Force Majeure provision was very detailed and specifically referenced a strike, the studio was still held liable for breach, because it had other writers on staff and other means to begin production.  Thus, since the studio could have taken reasonable steps to prevent the Force Majeure event from impacting performance on the contract, it was still held liable for breach.

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