When COVID-19 Makes Performing a Contract Impossible – What Happens? 

 

Application of Force Majeure Clauses, Acts of God, and Civil Code Section 1511

California business owners have been confronted by COVID-19 with entirely unprecedented challenges, many of which have made it impossible to get work done. For companies struggling to understand their contractual obligations under conditions never imagined when a contract was signed, there are countless questions about what to do, and where responsibilities lie for non-performance. Existing California law does, however, provide some useful guidance. Unfamiliar terms including “force majeure” and “impossibility of performance” have been taken out of the legal toolshed, dusted off, and can potentially be put to use.

 

Force Majeure And COVID-19

“Force Majeure” translated literally means superior strength. The phrase is also legal shorthand for contractual terms that excuse or extend the performance because of the occurrence of events beyond a party’s control that make performance either impossible or, in extreme situations, impracticable. Often times, these clauses specify certain types of events that justify a party’s failure to perform. For example, the State of California’s Standard Agreement Terms and Conditions contains the following force majeure clause:

“Force Majeure” means a delay which impacts the timely performance of Work which neither Contractor nor the State are liable because such delay or failure to perform was unforeseeable and beyond the control of the party. Acts of Force Majeure include, but are not limited to: 

  • Acts of God or the public enemy 
  • Acts or omissions of any government entity
  • Fire or other casualty for which a party is not responsible 
  • Quarantine or epidemic
  • Strike or defensive lockout
  • Unusually severe weather conditions

The COVID-19 pandemic may present a number of such circumstances, including the “acts or omissions of a government entity” language, if performance was made impossible by “stay at home” orders issued by government officials. The “quarantine or epidemic” language is also potentially applicable.

In the context of construction projects, AIA contracts sometimes contain clauses that operate similarly to a “Force Majeure” clause but are not titled “Force Majeure.” For example, the AIA A201-2017 General Conditions at Section 8.3.1 (Delays and Extensions of Time) provides:

If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 15.1.6.2, or other causes beyond the Contractor’s control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.

The “unavoidable casualties” and “other causes beyond the contractor’s control” provisions of the AIA contract language could apply to COVID-19 stay at home orders. But it only provides for additional time to perform. It does not entirely excuse the contractor’s performance. Put another way, the contractor still has to complete the work, but deadlines may be extended. Notably, the AIA language appears to make the determination regarding an extension of time subject to an architect’s complete discretion.

It is worth noting in the construction context with respect to California, that construction and most material suppliers related to construction have been exempted in whole or in part from the Governor’s stay-at-home order. Thus, the applicability of force majeure clauses in the construction context may be limited or, at least, project-specific.

 

Civil Code Section 1511 And COVID-19

Where contracts contain no force majeure language, California Civil Section 1511 may nevertheless apply and excuse a party’s non-performance. Civil Code Section 1511 provides that:

The want of performance of an obligation, or of an offer of performance, in whole or in part, or any delay therein, is excused by the following causes, to the extent to which they operate:

  1. When such performance or offer is prevented or delayed by the act of the creditor, or by the operation of law, even though there may have been a stipulation that this shall not be an excuse; however, the parties may expressly require in a contract that the party relying on the provisions of this paragraph give written notice to the other party or parties, within a reasonable time after the occurrence of the event excusing performance, of an intention to claim an extension of time or of an intention to bring suit or of any other similar or related intent, provided the requirement of such notice is reasonable and just;
  1. When it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary; …

With respect to performance delayed by “operation of law,” orders issued by governmental officials and departments in relation to COVID-19, including but not limited to the stay-at-home orders, may qualify as valid excuses for non-performance, where the orders actually cause the inability to perform.

 

Acts of God and COVID-19

 

The applicability of the “irresistible, superhuman cause” excuse provided by Section 1511 is less clear. This aspect of Civil Code Section 1511 has never been fully analyzed by California courts. The phrase “irresistible, superhuman cause,” however, is used in other sections of the Civil Code. For example, it is found in sections relating to common carriers and freight (Civil Code Section 2194) and, in the distant past, to the potential liability of innkeepers (former Civil Code Section 1859). More than a century ago, the California Supreme Court construed the phrase, at least with respect to the version of Section 1859 that was in effect in 1892, to mean the equivalent of an “act of God.” Whether COVID-19 fits into the “irresistible, superhuman cause” excuse remains to be seen, but is far from a stretch.

A key aspect of Section 1511 is that it applies even if the contract provides that no such excuse is valid. In other words, Section 1511 trumps competing language in a contract. Also, Section 1511 underscores the importance of giving reasonable notice. As a best practice, it is advisable to communicate notice to the other party of any inability to perform because of the COVID-19 pandemic as soon as possible.

 

Summary of Best Practices 

  • Review the terms of your written contract.
  • Determine the extent to which performance is possible or impossible under the COVID-19 circumstances you face.
  • If performance is impossible, provide prompt notice to the other party, and explain why COVID-19 circumstances have caused the impossibility to perform.

Please do not hesitate to contact us for assistance.

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