Today, countries worldwide are responding to a pandemic of respiratory disease spreading from person-to-person caused by a novel coronavirus. The disease has been named “coronavirus disease 2019” (abbreviated “COVID-19”). The pandemic poses a serious public health risk, and government response has included closure of schools and businesses, declarations of emergency, and issuance of a variety of “stay home” orders—typically instructing all but “essential personnel” to remain in their residences other than to gather necessaries. These events have dramatically impacted the world economy, and wreaked havoc on the day-to-day functions of individuals and businesses in the United States and elsewhere. Does this pandemic and resultant disruption constitute a force majeure event under Louisiana and Texas law?
A force majeure clause is “a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event or effect that the parties could not have anticipated or controlled.” Black’s Law Dictionary (11th ed. 2019). The purpose of a force majeure clause is to excuse a party from nonperformance or anticipatory breach caused by circumstances beyond the party’s reasonable control.
The civil law system of Louisiana and the common law system of Texas provide insight into how different jurisdictions might approach public health crises in the context of force majeure. In short, both jurisdictions recognize the doctrine, although contracting parties in Texas may find their force majeure rights determined more by the language of their contracts than by general legal principles. When looking beyond the text of a contract to codal or common-law defenses, both jurisdictions require “impossibility” of performance, and the bar for impossibility is high. Economic exigencies likely will not qualify. Thus, logistical and economic difficulties brought about by COVID-19 may not qualify as a force majeure—without more. However, the analysis may change if governmental directives restrict activity in a way that defeats all reasonable means of performance. In all cases, the inquiry is likely to be fact-specific.
In Louisiana, force majeure is a legal principle that exists independently of a contract’s terms; that is, courts apply the doctrine regardless whether the contract includes a force majeure clause. However, if the contract fails to define a force majeure, or if the definition of force majeure does not otherwise include the event in question (and here we note that the inclusion of pandemics or outbreaks in existing force majeure clauses appears to be a rarity), Louisiana courts traditionally limit application of the doctrine to situations where obstacles make performance actually “impossible.”
The Louisiana Civil Code calls these obstacles “fortuitous events,” which Article 1875 defines as “one that, at the time the contract was made, could not have been reasonably foreseen.” But unforeseeability is only part of the equation. For the unforeseeable event to constitute a force majeure, Article 1873 specifies that the event must render performance impossible: “An obligor is not liable for his failure to perform when it is caused by a fortuitous event that makes performance impossible.”
The Civil Code provides that when a party’s entire performance has been made impossible, the contract is dissolved and the other party may recover for any performance already rendered. La. Civil Code art. 1876. The Code also contemplates that performance may be impossible in part, stating in Article 1877: “When a fortuitous event has made a party’s performance impossible in part, the court may reduce the other party’s counterperformance proportionally, or according to the circumstances, may declare the contract dissolved.”
In Louisiana, impossibility imposes a high bar for force majeure. Scholars posit that Louisiana does not provide a remedy for “exceptionally difficult” or “excessively burdensome” contracts; instead, the impediment to performance must meet the much higher standard of “truly impossible.” Saul Litvinoff, Force Majeure, Failure of Cause and Theorie de l’Imprévision: Louisiana Law and Beyond, 46 LA. L. Rev. 1 (1985). Consequently, Louisiana courts usually have not considered economic hardship to constitute a force majeure. A classic example is Marionneaux v. Smith, where a party who had agreed to cut and remove timber within a certain time argued that the world-wide financial panic and economic downturn associated with the Great Depression precluded his ability to cut and market the timber without suffering an unreasonably great financial loss. The Louisiana court found that this did not make the performance impossible but merely rendered it more difficult, burdensome, and unprofitable, causes which could not be excused. 163 So. 206 (La. App. 1st Cir. 1935).
Courts are not entirely consistent on this point, however. A counter-example is Continental Oil Co. v. Crutcher, 434 F. Supp. 464 (E.D. La. 1977), where a federal court applying Louisiana law found that a 500% increase in the price of natural gas was “likely to qualify as a force majeure event” under a take-or-pay gas contract, and thus excuse non-performance.
It does not appear that any Louisiana decisions squarely address whether disease can constitute a force majeure. However, disease has a long history in the state—and especially in the global port city of New Orleans. One 1842 breach-of-contract case involving a yellow fever epidemic is instructive. In William Roley Glover v. Samuel T. McAllister, 2 Rob. (La.) 161, 1842 WL 1652, the plaintiff steamboat owners contracted to tow defendants’ ship from New Orleans to Natchez the next day for $900. The plaintiffs’ steamboat was in the process of being repaired, and could not leave immediately. Later the same day, at the insistence of his passengers, the captain of the ship left early with another steamer. The ship had arrived “at a time when the yellow fever was raging in the city with great violence, and an hour’s delay might have endangered the lives of the passengers and crew.” The judge found that “although the contract was deliberately broken, it was so for reasons which are good and valid in themselves, although foreign to the contract[.]” Accordingly, the judge reduced the plaintiffs’ claim to what he called “naked damages,” a term the Supreme Court construed to mean those damages “actually sustained, without allowing for profits lost.” Feeling “no disposition to differ” from the trial court, the Louisiana Supreme Court affirmed the judgment awarding the plaintiff $350. Thus, avoidance of yellow fever was not treated like a force majeure—which would excuse the breach of contract, but it was considered as an equitable matter in assessing breach-of-contract damages.
The general rule in Texas is that, absent a force majeure provision, an act of God or other unforeseen circumstance does not relieve the parties of their contractual obligations. One exception is contracts for the sale of goods, for which Section 2.615 of the Texas Business and Commerce Code excuses performance “made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order. . . .”
The second exception is the common-law doctrine of impossibility or impracticability of performance, under which a party’s performance is excused if made impracticable by the occurrence of an unforeseeable event, the non-occurrence of which was a basic assumption on which the contract was made. The doctrine applies in three instances: (1) the death or incapacity of a person necessary for performance, (2) the destruction or deterioration of a thing necessary for performance, and (3) prevention by governmental regulation or order that creates a legal impediment to performance. Performance is excused only if objectively impracticable (“the thing cannot be done”), not merely subjectively impracticable (“I cannot do it”). Importantly, changes in economic conditions alone do not render performance impracticable unless the above definition is met. A party claiming this defense must use reasonable efforts to surmount the obstacle to performance.
If a contractual force majeure provision exists, the burden is on the party seeking to avoid performance to specifically plead and prove this affirmative defense. This includes proof that the clause applies to the event in question, that the event was beyond the party’s control and without its fault or negligence, and that performance of its contractual obligations has been prevented by the event (and not merely made more difficult or economically burdensome).
Texas law does not provide one universally accepted definition of force majeure. Instead, the specific language of the contract controls the scope, application, and effect of the force majeure clause, and common-law rules merely fill in gaps left by the contract (including the requirement of unforeseeability and the doctrine of ejusdem generis, both discussed below). In determining whether a force majeure provision applies, a court’s primary concern is to ascertain the intent of the parties as expressed in the contract. A Texas court will not rewrite the contract or interpret it in a manner which the parties never intended.
Texas courts construe force majeure clauses narrowly. The clause will be triggered only where it expressly includes the contingent event (e.g., fire, flood, storm, act of governmental authority, labor disputes, war). Frequently, the list of specific events will be followed by a general, catch-all term such as “any other cause not enumerated herein.” Courts apply the doctrine of ejusdem generis (when general words follow an enumeration of two or more things, they apply only to things of the same general kind or class specifically mentioned) to interpret the general phrase as limited to those of the same type of events specified. In contrast, if the list of specific terms is preceded by the phrase “including but not being limited to,” a court may refuse to apply the doctrine of ejusdem generis because use of this phrase indicates intent to excuse all delays coming within the general description regardless of their similarity to the enumerated excuses.
Therefore, whether disruption based on a pandemic like COVID-19 will excuse performance depends on the language of the particular force majeure clause. Where a force majeure clause explicitly uses terms such as “disease,” “epidemic,” “pandemic,” “quarantine,” “state of emergency,” “governmental authority,” or “governmental order,” parties may, depending on the circumstances, be able to assert force majeure as a defense to non-performance or anticipatory breach in the case of the COVID-19 pandemic.
Whether the event must have been unforeseeable at the time the parties contracted has been a matter of debate. According to a recent opinion from the Houston Court of Appeals, a party relying on a catch-all phrase excusing performance of, for example, “events beyond a party’s control,” is required to show that the event was unforeseeable; in contrast, if the event is one specifically enumerated, a showing of unforeseeability is not required. See TEC Olmos v. ConocoPhillips, 555 S.W.3d 176 (Tex. App.—Houston [1st Dist.] 2018, pet. denied).
Under this ruling, if the force majeure clause does not contain terms like “pandemic,” “epidemic,” “viruses,” or “disease,” but includes a catch-all phrase, the issue will be whether the COVID-19 pandemic was foreseeable. It is unclear how a court will determine this issue. However, following the SARS outbreak, legal commentator Patrick O’Connor suggested that courts might find a virus outbreak to be foreseeable and advised revising force majeure provisions to incorporate such events. See Kristin Choo, The Avian Flu Time Bomb the Legal System Will Play A Key Role in Planning the Response to A Possible Onslaught of the Virus, ABA J. 36, 41 (2005). O’Connor correctly predicted that “the most likely source for the next pandemic will be some virus that jumps to us from an animal.” Patrick J. O’Connor, Allocating Risks of Terrorism and Pandemic Pestilence: Force Majeure for an Unfriendly World, Constr. Law. 5, 7 n.24 (2003).
What is clear is that parties should ensure that any new contracts define force majeure to specifically include these events, as it will be difficult to show that a future pandemic was unforeseeable in light of the current crisis.
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