California Judiciary’s Handling of Contractually Agreed-Upon Force Majeure Clauses

July 14, 2020 by Melissa C. Martorella, Esq.

California contracts are based on the premise that the affiliated parties are effectively promising to perform or refrain from a given action. In the event one side does not honor their contractual obligations, the other party or parties can potentially collect damages for breach of contract.

Things get a bit complicated, however, when a party is unable to satisfy their end of the agreement due to circumstances it had absolutely no control over, such as the recent COVID-19 global pandemic.

The Concept of Force Majeure

In such instances, the breaching party can employ the force majeure defense to breach of contract. The term force majeure is French in origin, which means ‘superior force,’ and is used to refer to conditions or events that impact a contract’s performance and are outside the control of either party to a contractual agreement. These types of events are sometimes referred to as “acts of God” such as natural disasters like major storms or earthquakes as well as human-induced events such as labor strikes and military conflicts. From a legal perspective, the California Supreme Court defined force majeure in its opinion in Pacific Vegetable Oil Corp. v. CST, Ltd., 29 Cal.2d 228, 238 (Cal. 1946)—which involved a 1941 contract that was affected by the outbreak of World War II in the Pacific—as “…an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise of prudence, diligence, and care.”

Generally speaking, the principle of force majeure does not encompass predictable or commonly occurring natural events. To illustrate, a party would likely not be able to assert force majeure if a thunderstorm rendered an outdoor venue unusable in a region where it regularly rains. If the same storm also produced tornadoes or severe winds, however, then force majeure could come into play to excuse a party for non-performance. Conditions that either party has complete control of are typically not deemed force majeure—especially if they are brought about due to the wrongdoing or negligent behavior who is seeking relief from non-performance. For example, if a commercial landlord fails to install working smoke detectors in his or her facility and a fire subsequently destroys their property and therefore makes it impossible to honor a contract, the facility owner would be unable to claim force majeure because the event was a direct result of their negligence.

Contractual Force Majeure Clauses

Force majeure clauses are commonly included in California contracts and enable the associated parties to be excused in instances of non-performance if an unpredicted event outside their realm of control renders it impossible for them to perform their original contractual obligations. The language of the clause can be as general or specific as the parties agree upon and parties can agree to waive their right to claim breach of contract or, alternatively, give the breaching party more time to perform in order to allow for repairs or remedial action in light of an unforeseen event.

Force majeure is similar to the concept of impossibility of performance that is an affirmative defense that stems from common law, and which the California Supreme Court expounded on in Eucalyptus G. Assn. v. Orange C.N.L, 174 Cal. 330, 334 (Cal. 1917), stating: “[if] the doing of the thing contracted for is impossible, neither party is bound to its performance.” This stance on the basic principle of impossibility has been formalized via Sections 3526 and 3531 of the California Civil Code, which reads, respectively, that “no man is responsible for that which no man can control” and “the law never requires impossibilities.” In spite of this, the California Supreme Court has established a high burden of proof for successfully asserting the impossibility defense, clarifying in the opinion issued in Oosten v. Hay Haulers etc. Union, 45 Cal.2d 784, 789 (Cal. 1955) that contractual performance may be excused only if “in spite of skill, diligence, and good faith on a party’s part, performance became impossible or unreasonably expensive.”

California’s Judicial Interpretation of Force Majeure

The California judicial system generally construes force majeure clauses incorporated into contracts very narrowly. The California Civil Code clarifies that a court will not hold a party liable for contractual breaches when it is impossible to perform obligations due to uncontrollable external events. The Pacific Vegetable Oil opinion explicitly stated that courts should determine if impossibility is justified on a case-by-case basis depending on the unique circumstances at hand. Accordingly, if the event at issue is one that either party assumed any ordinary risk and the associated contract contained a force majeure clause, it would most likely be enforceable. However, if the event is not explicitly cited in the contract and is considered a normal risk in that given professional sector, then the party would still be held liable for holding up their end of the agreement.

If you have questions about whether to include a force majeure clause in your contracts, how to interpret the clause, or whether the clause may apply in a particular circumstance, Geraci Law Firm is here to help. Our team of experts has both negotiated force majeure clauses at time of contract drafting, and litigated those clauses upon a dispute. Reach out to us here.

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