By now, you have seen countless commentaries about potential supply chain disruptions caused by COVID-19. Most tell you to review your contracts, including any force majeure provisions, to determine your and your counterparty’s rights and obligations. Let’s assume you completed that contractual review task weeks ago. Now what?  No one knows when the existing disruption will subside, but it is inevitable that organizations have contracts that they or their counterparties cannot perform. In some instances, organizations will have to resort to litigation or contractual alternative dispute resolution procedures to enforce or otherwise protect their interests.

This alert focuses on how US courts will address the issues that are most likely to be disputed in this inevitable wave of upcoming litigation. For this task, we examined key precedent involving force majeure enforceability, federal and state court decisions involving disputes about the enforcement of force majeure contractual provisions reported over the last 14 months; and considered potentially relevant cases dealing specifically with force majeure declarations caused by an outbreak of sickness, pandemic, or epidemic, of which there are surprisingly few. This alert contains more legal citations than most, but we believe that a deep-dive into relevant caselaw provides meaningful guideposts to organizations analyzing the contours of their specific contractual rights. In many states, precedent on enforceability of force majeure provisions is limited, and courts often look to other jurisdictions for guidance. We note also that some disputes regarding the applicability of force majeure contractual provisions are resolved by private alternative dispute resolution and thus do not appear in recorded court decisions. 

We considered the following key questions for our examination:

• What are the ground rules of force majeure enforceability in US courts?
• Does the alleged force majeure event prevent performance?
• How did courts confront force majeure declarations based on the economic conditions caused by the 2008 financial crisis?
• What if the contractual obligation at issue is the payment term?
• Are there applicable notice requirements?
• What if the contract lacks a force majeure provision?

The Ground Rules of Force Majeure Enforceability

Contractual force majeure provisions “allocate 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 participated or controlled.”  Force majeure, Black’s Law Dictionary (11 ed. 2019). The specific, negotiated language of the parties’ force majeure provision will control. See Perlman v. Pioneer Ltd. P'ship, 918 F.2d 1244, 1248 n.5 (5th Cir. 1990); Acheron Med. Supply, LLC v. Cook Inc., 2019 WL 2574147, at *2 (S.D. Ind. June 24, 2019) (quoting Specialty Foods of Indiana, Inc. v. City of S. Bend, 997 N.E.2d 23, 27 (Ind. Ct. App. 2013)) (“In other words, when the parties have defined the nature of force majeure in their agreement, that nature dictates the application, effect, and scope of force majeure with regard to that agreement and those parties, and reviewing courts are not at liberty to rewrite the contract or interpret it in a manner which the parties never intended.”).

Force majeure provisions are narrowly construed and “will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.”  See In re Cablevision Consumer Litig., 864 F. Supp. 2d 258, 264 (E.D.N.Y. 2012) (citing Reade v. Stoneybrook Realty LLC, 63 A.D.3d 433, 434 (N.Y. App. Div. 2009)). The specific descriptions used in the force majeure clause are critical. For example, on March 3, 2020, the Southern District of New York confirmed a final arbitration award that rejected application of a force majeure clause where the non-performing party claimed force majeure because local authorities failed to issue an export permit, but the clause only covered “withdrawal by the local authorities of any required export permit.”  See Pioneer Navigation Ltd. v. Chem. Equip. Labs, Inc., No. 1:19-cv-2938, 2020 WL 1031082 (S.D.N.Y. Mar. 3, 2020).

The force majeure provision may also only relate to performance by only one of the contracting parties. For example, consider Rembrandt Enterprises, Inc. v. Dahmes Stainless, Inc., No. C15-4248, 2017 WL 3929308, at *12–13 (N.D. Iowa Sept. 7, 2017), in which a court concluded that the Avian bird flu outbreak, even though it affected the supply of the contracting egg producer, was not a force majeure event as defined in its contract to obtain construction of an industrial egg dryer at its production facility because the force majeure provision was limited to events related only the contractor’s performance.

Most force majeure provisions, after listing a series of specific events, contain catchall language such as “or other conditions or contingencies beyond a party’s control.”  Courts generally construe these catchall provisions narrowly pursuant to the rule of ejusdem generis. See, e.g., Seitz v. Mark-O-Lite Sign Contractors, Inc., 510 A.2d 319, 321 (N.J. Super. Ct. 1986) (“Under this principle, the catch-all language of the force majeure clause relied upon by defendant is not to be construed to its widest extent; rather, such language is to be narrowly interpreted as contemplating only events or things of the same general nature or class as those specifically enumerated.”); URI Cogeneration Partners, L.P. v. Bd. of Governors for Higher Educ., 915 F. Supp. 1267, 1287 (D.R.I. 1986).

To qualify as an event of force majeure, even if the specific event is listed within the parties’ provision, most courts require that the event have been unforeseeable at the time of contracting. See United States v. Brooks-Callaway Co., 318 U.S. 120, 123–24 (1943) (finding unforeseeability required to excuse performance) (“Not every fire or quarantine or strike or freight embargo, [even though listed in the force majeure provision] should be an excuse for delay under the proviso.”) (internal citations omitted). Some courts, including the Fifth Circuit, do not require unforeseeability where the alleged force majeure event is specifically listed in the force majeure clause. See, e.g., Eastern Air Lines v. McDonnell Douglas Corp., 532 F.2d 957, 990–92 (5th Cir. 1976) (considering effect of government’s request to aviation industry to give priority of new planes to government for buildup of Vietnam War on private contract for manufacture of planes); Perlman, 918 F.2d at 1247–48 (concluding that provision specifying “inability to obtain governmental permits” as an event of force majeure did not require showing unforeseeability when performance was hindered by inability to obtain permits without expensive testing). Where a party is relying on a catch-all provision following a specific list of force majeure events, such as “any other cause not enumerated herein but which is beyond the reasonable control of the party whose performance is affected,” courts have required the alleged event of force majeure to be unforeseeable at the time of contracting. See, e.g., TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 182–83 (Tex. App. 2018) (finding that force majeure catch-all provision did not include events that were foreseeable, such as fluctuation in the oil and gas market that affects a party’s ability to obtain financing). 

Regardless of foreseeability, the event must be beyond the party’s control and without the party’s fault or negligence. See Gulf Oil Corp. v. FERC, 706 F.2d 444, 452 (3d Cir. 1983); Love v. Barnesville Mfg. Co., 50 A. 536, 537 (Del. Super. Ct. 1901) (“The defendant would not be liable for damages caused solely by the act of God, such as an epidemic of sickness in the defendant’s factory, in the absence of its undertaking so to do.”).

It is important to note that whether an event was foreseeable and/or beyond a party’s control are questions of fact that will not allow for a grant of summary judgment if material facts are disputed. See, e.g., Roost Project, LLC v. Andersen Constr. Co., No. 1:18-cv-238, 2020 WL 560574, at *8–9 (D. Idaho Feb. 4, 2020) (denying summary judgment on question of whether labor shortage and winter weather were foreseeable at time of contracting to preclude enforcement of parties’ force majeure provision).

Does the Alleged Force Majeure Event Prevent Performance?

A party cannot excuse its obligations under a contract merely because an event of force majeure exists. That event must specifically prevent the party’s performance. The nonperforming party will have the burden of proof that the contract cannot be performed because of the alleged event of force majeure. Phillips Puerto Rico Core, Inc. v. Tradax Petroleum, Ltd., 782 F.2d 314, 319 (2d Cir. 1985); WC 1899 McKinney Avenue, LLC v. STK Dallas, LLC, 380 F. Supp. 3d 595, 604 (W.D. Tex. 2019); Acheron Med. Supply, LLC, 2019 WL 2574147, at *2. We predict that this performance issue, more so than whether the outbreak of COVID-19 itself is an event of force majeure, will be at the heart of forthcoming virus-related disputes.

To invoke force majeure and excuse performance, the nonperforming party has a duty to prove what action it took to perform the contract regardless of the occurrence of the event of force majeure. See Gulf Oil Corp. v. FERC, 706 F.2d 444, 452 (3d Cir. 1983) (relying on Brooks-Callaway Co., 318 U.S. at 123–24). The party must prove that “the failure to perform was proximately caused by a contingency and that, in spite of skill, diligence, and good faith on the promisor’s part, performance remains impossible or unreasonably expensive.”  Pennington v. Cont’l Res., Inc., 932 N.W.2d 897, 902 (S.D. 2019) (quoting 30 Williston on Contracts § 77:31 (4th ed. 2004)).

For example, for contracts governed by the United Nations Convention on Contracts for the International Sale of Goods (“CISG”), one of the elements for a force majeure defense is that the party could not have reasonably avoided or overcome the alleged event or its consequences. See CISG Art. 79 (other factors include the event being beyond party’s control, unforeseeable at the time of contracting, and notice to the other party within a reasonable time after the party knows or should have known about the impediment to performance). The Southern District of New York considered this issue in the context of economic response to the Avian bird flu in determining whether to confirm an arbitration award. Macromex SRL v. Globex Int’l, Inc., No. 08-cv-114, 2008 WL 1752530 (S.D.N.Y. Apr. 16, 2008). On June 2, 2006, the Romanian government declared that to combat the Avian bird flu, no chicken could be imported into Romania after June 7, 2006 unless the chicken was properly certified. Id. at *1 & n.4. Party A had a contract to sell a Romanian company 112 containers of chicken parts. As of June 7, 2006, forty-two containers remained unshipped because of the government’s ban. Party A raised a force majeure defense, and although the arbitrator found that the chicken ban was the cause of Party A’s failure to perform, the arbitrator concluded that Party A could have reasonably overcome the impediment by accepting Party B’s request to ship the chicken parts to a port in the nearby country of Georgia. Id. at *1–2. The court confirmed the award. See id. at 4–5 (explaining the arbitrator correctly looked to the U.C.C. for guidance in clarifying the CISG’s requirement).

When the alleged event of force majeure affects profitability, but does not preclude performance, courts will be unlikely to excuse non-performance. See 30 Williston on Contracts § 77:31 (4th ed. 2004) (“A mere increase in expense does not excuse performance under a force majeure provision unless there exists an extreme and unreasonable difficulty, expense, or injury.”). For example, consider Seaboard Lumber Co. v. United States, 308 F.3d 1283 (Fed. Cir. 2002), in which a lumber company entered into a long-term fixed price contract with the federal government to harvest timber. The following year, the government allowed interest rates to rise to combat inflation, and the housing and lumber markets accordingly softened. Eventually, the contract expired, uncompleted. The lumber company conceded non-performance, but argued that its non-performance was excused because of force majeure, including because “acts of government” was a specified event in the parties’ contractual provision. Id. at 1291. The court concluded that “acts of government” was not broad enough to include fiscal or monetary policy decisions, and more importantly, the government’s acts made contractual performance less profitable, but did not preclude the lumber company’s performance given that the timber was available to harvest in sufficient quality to have met the contract’s requirements. Id. at 1293–94; see also Langham-Hill Petroleum, Inc. v. S. Fuels Co., 813 F.2d 1327, 1330 (4th Cir. 1987) (rejecting force majeure allegation where contract became unprofitable to one party because of actions by the Saudi Arabian government to collapse world oil prices); N. Ind. Pub. Serv. Co. v. Carbon Cty. Coal Co., 799 F.2d 265, 275 (7th Cir. 1986) (concluding government order denying request from a utility to pass increased coal prices to customers did not excuse utility from long-term contract to buy coal even though that order made the contract unprofitable). As the Seventh Circuit has explained, “A force majeure clause is not intended to buffer a party against the normal risks of a contract. The normal risk of a fixed-price contract is that the market price will change.”  N. Ind. Pub. Serv. Co., 799 F.2d at 275.

Changes in market demand alone are unlikely to constitute an event of force majeure sufficient to excuse performance, but some courts have suggested that “a major, unpredictable event” that causes a shift in market conditions could. See, e.g., Rexing Quality Eggs v. Rembrandt Enters., Inc., 360 F. Supp. 3d 817, 841 (S.D. Ind. 2018). In Rexing Quality Eggs, the Southern District of Indiana considered whether a party that contracted to purchase 3.2 million cage-free eggs per week for a year could justify not agreeing to take and pay for the last 16 weeks of purchases on the grounds that the market demand for cage-free eggs was not as anticipated at the beginning of the contract. Id. at 820, 829–30. The court concluded that the purchaser could not justify non-performance because a change in market demand, even a substantial one, was a foreseeable part of doing business. Id. at 841–42 (“[P]arties are free to contract to allow for excusal when economic circumstances dictate . . . the parties had every opportunity to negotiate for a force majeure clause that would excuse performance if demand for cage-free eggs dropped.”). The court, however, contrasted that situation with an example from a prior unreported case that involved the Avian bird flu, “which may plausibly constitute an unforeseeable event precipitating a dramatic change in market conditions” sufficient to excuse performance. Id. at 840–41.

Efforts To Declare Force Majeure Following the 2008 Financial Crisis

Efforts to declare force majeure because of the 2008 financial crisis were largely unsuccessful. For example, in 2006, a group of companies that planned construction of a steel plant entered into a 15-year Transportation Services Agreement with a pipeline, but following the 2008 financial crisis, global demand for steel plummeted, and the ensuing marketplace volatility prevented the companies from obtaining financing for the facility. See Great Lakes Gas Transmission Ltd. P’ship v. Essar Steel Minnesota, LLC, 871 F. Supp. 2d 843, 846–48 (D. Minn. 2012). The companies invoked the force majeure provision in their contract, arguing that “the slump in steel prices” constituted an event permitting delay of their performance. Id. at 848, 852 (arguing that the force majeure clause’s catch-all language applied, which stated, “any other cause, whether the kind herein enumerated or otherwise, and whether caused or occasioned by or happening on account of the act or omission of one of the parties hereto . . . not within the control of the party claiming suspension and by which the exercise of due diligence such a party is unable to prevent or overcome”). The court concluded that the force majeure provision could not apply to excuse the companies’ nonperformance, and explained that the failure to obtain financing, “even absent a global financial crisis,” was a foreseeable event. Id. at 855. The court reasoned that the parties could have conditioned the contract on the companies’ obtaining financing, or on some other market-based conditions, but the parties did not. Id. For example, a different court excused performance of an automotive company’s contractual obligations after its plant that was the subject of the contract was forced to close because of the 2008 financial crisis given that the parties’ force majeure clause specifically included “change to economic conditions” as an event of force majeure. See In re Old Carco LLC, 452 B.R. 100, 119 (S.D.N.Y. 2011) (noting, however, that economic conditions do not ordinarily excuse a defaulting party’s performance).

Similar to the pipeline case, a New York court concluded that a restaurant group’s decision to scrap plans for opening new restaurants because of the 2008 financial crisis was not grounds for invoking force majeure under a ground lease. Route 6 Outparcels, LLC v. Ruby Tuesday, LLC, No. 2413-09, 2010 WL 1945738, at *4 (N.Y. Sup. Ct. May 12, 2010) (explaining that even if a severe economic downturn could be a triggering event falling within broad force majeure catchall language, the restaurant group “failed to demonstrate that it was prevented from complying with its obligations under the Lease due to events entirely outside of its control); see also Elavon, Inc. v. Wachovia Bank, 841 F. Supp. 2d 1298, 1308–09 (N.D. Ga. 2011) (rejecting argument that 2008 financial crisis constituted force majeure event under parties’ force majeure provision, but even if it did, that performance would not be excused because no external event prevented the party from performing the contract). 

In the Route 6 case, the court cast the restaurant group’s decision to undertake capital intensive expansion at a time of apparent economic growth and its later responses to the downturn as business decisions, not events beyond its control. 2010 WL 1945738, at *4. The court also noted that the restaurant group failed to identify the specific steps it took to perform its contractual obligations despite the financial difficulties. Id. at *5; see also In re Old Carco LLC, 452 B.R. at 123–24 (discussing in detail the significant efforts the party took to remain a viable business and perform its contractual obligations in the wake of the financial crisis for support that force majeure could excuse the party’s performance). As demonstrated by these cases, if a company is considering a declaration of force majeure, it is critical to keep clear records chronicling attempts to perform the subject contract and the obstacles that may prevent or delay performance. 

What if the contractual obligation in question is the ability to make payments?

Some force majeure provisions specifically carve out the making of payments—that is, an event of force majeure can apply to preclude performance of contractual obligations except for the contractual obligation to make payment, unless the making of payments is explicitly precluded by the event of force majeure in question. For example, a federal district court in Louisiana confronted the following scenario:  Party A entered into a contract with the Port of Lake Charles to construct a grain terminal that required Party A to perform certain dredging activity in an adjacent waterway and required Party A to make certain minimum annual rental payments from the beginning of the contract. IFG Port Holdings, LLC v. Lake Charles Harbor & Terminal Dist., No. 16-cv-146, 2019 WL 1064264, at *1–2 (W.D. La. Mar. 6, 2019). Party A claimed that payment of the minimum annual rental payment for the first year of the contract was not required because of force majeure, specifically because the potential presence of contaminants in the dredging area delayed the requisite dredging. Id. The court concluded that the alleged events may be considered force majeure, but that the event of force majeure did not extend to Party A’s obligation to pay the requisite minimum rental payment given this contractual caveat: “Force Majeure provides that any party to the Lease invoking its provisions ‘shall be excused from performing any of its respective obligations or undertakings . . . excepting any of its respective obligations or undertakings to pay any sums of money under the applicable provisions hereof ....’”  Id. at *10; see also Great Lakes Gas, 871 F. Supp. 2d at 855 (“Reading the contract as a whole, it would make little sense for the force majeure clause to excuse [the party’s] obligation to make payments when the immediately succeeding remedies clause explicitly provides that neither party is excused from its obligation to make payments or amounts due under the Contract.”). 

Consider a recent federal case in Florida involving the operation of a nursing home in which the defendant paid rent to the property owner. ARHC NV WELFL01, LLC v. Chatsworth at Wellington Green, LLC, No. 18-80712, 2019 WL 4694146 (S.D. Fla. Feb. 5, 2019). The Bundled Payment for Care Improvement program operated by the Centers for Medicare and Medicaid Services was a substantial component of the defendant’s revenue stream. Following certain changes in that program, the defendant became unable to pay rent, and claimed force majeure as an excuse for non-performance. The court indicated that in a vacuum, the government program’s changes were “not in the reasonable control of either party” and thus could be an event of force majeure under the parties’ contract, but explained that the defendant failed to prove that its failure to perform “resulted from” the program’s modifications (the contract only excused a party’s performance if the “Event of Default” “resulted from a Force Majeure Event”). Id. at *4 (relying on Seaboard Lumber and explaining that the performance required of defendant under the contract was the payment of rent). Where certain market conditions or specific government action could render performance—especially performance of payment—challenging, the parties should specifically account for this possibility in their contracts. Id. at *5 n.1 (“Force majeure clauses generally operate as catch-all provisions, not as substantive terms. If a certain contractual provision is of critical importance to a contracting party—as Defendant contends regarding protection from policy-driven revenue fluctuations—it is incumbent on that party to draft the contract in such a way that the contract unambiguously reflects the desired provision.”).

Be mindful that even if an event qualifies as an event of force majeure justifying nonperformance in one contract, this qualification may not equally apply to the other contracts in a supply chain unless the later contracts expressly condition performance on the performance of other contracts/obligations within the chain. For example, a federal court in Puerto Rico recently rejected a force majeure defense where the defendant borrower of a commercial loan claimed force majeure based on the political and economic crises occurring in Venezuela. Bancredito Int’l Bank Corp. v. Data Hardware Supply, Inc., No. 18-1005, 2019 WL 4458839, at *2 (D.P.R. Sept. 13, 2019). The defendant argued that it could not repay the loan payment until it received payment from a third-party Venezuelan company. While the court said that the Venezuelan company could have difficulty making payments to the defendant because of the Venezuelan political situation, the contract between the parties was not contingent on those payments. Id. The court explained that while the events in Venezuela could give rise to a force majeure defense, the defendant US company had not established how those events precluded repayment of the loan under the parties’ agreement. Id.

How do courts interpret any notification requirements?

Many force majeure provisions contain a notification clause that requires a party to provide notice to its counterparty if invoking the force majeure clause. Some of these notification periods can be short. Failure to provide notice as required under the parties’ force majeure clause may render a force majeure defense ineffective. Aquila, Inc. v. C.W. Mining, No. 2:05-cv-00555, 2007 WL 9643101, at *4–5 (D. Utah Oct. 30, 2007) (finding that party to a coal supply contract could not rely on force majeure to excuse nonperformance due to geological problems where party did not provide written notice of force majeure events as required under the contract); Res. Inv. Corp. v. Enron Corp., 669 F. Supp. 1038, 1043–44 (D. Colo. 1987) (finding that defendants’ failure to comply with contractual notice requirements was “fatal” to defendants’ force majeure claim). For example, a federal district court in Kentucky recently found that sufficient notice of an alleged force majeure event was not adequately provided where the contract required the “non-performing party [to] immediately notify the other party by telephone (to be confirmed in writing within five business days) and describe at a reasonable level of detail the circumstances of the Force Majeure Event and its estimated duration.”  Gulf States Protective Coatings, Inc. v. Caldwell Tanks, Inc., No. 3:15-cv-649, 2019 WL 7403970, at *10 (W.D. Ky. June 18, 2019).  

What if the parties have a contract without a force majeure provision?

In the event a parties’ contract does not have a force majeure provision, a party may be able to avail itself of similar common law remedies to excuse performance, depending on the jurisdiction. For example, if performance is impossible, the common law generally recognizes that performance is excused. See, e.g., YPI 180 N. LaSalle Owner, LLC v. 180 N. LaSalle II, LLC, 933 N.E.2d 860, 865 (Ill. App. Ct. 2010); 407 E. 61st Garage v. Savoy Fifth Ave. Corp., 23 N.Y.2d 275, 281 (N.Y. 1968) (explaining that performance would not be excused under New York law for impossibility merely because of financial difficulty or economic hardship, even to the extent of bankruptcy); Key Energy Servs., Inc. v. Eustace, 290 S.W.3d 332, 340 (Tex. App. 2009) (listing death or incapacity of a person needed for performance, destruction of something needed for performance, or prevention due to government regulation as the three situations where contractual impossibility defense is generally available). This, of course, would not extend to contractual promises, that though seemingly impossible, are viewed as subjectively possible. See, e.g., Fast, Inc. v. Shaner, 183 F.2d 504, 506 (3d Cir. 1950) (“If an elderly judge, for good consideration, promises to run 100 yards in 10 seconds and then fails to perform he can hardly be held to puff out the defense that he could not possibly run that fast.”); Restatement (Second) of Contracts § 261 cmt. e (explaining difference between objective “the thing cannot be done” versus subjective “I cannot do it”).

Even if performance is not impossible, some jurisdictions recognize the concept of performance being excused because it is impracticable. For example, the Restatement (Second) of Contracts addresses “Discharge by Supervening Impracticability,” providing:  Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate to the contrary. Restatement (Second) of Contracts § 261; Key Energy Servs., 290 S.W.3d at 339 (embracing Restatement § 261). Notably, however, the Restatement is clear that “impracticability means more than impracticality.”  Restatement (Second) of Contracts § 261 cmt. d. Thus a change in degree of difficulty or expense, “unless well beyond the normal range,” would not excuse performance, and a party must use reasonable efforts to surmount any obstacles to performance. Id.; see, e.g., Bank of Am., N.A. v. Shelbourne Dev. Grp., Inc., 732 F. Supp. 2d 809, 827–28 (N.D. Ill. 2010) (“The fact that performance becomes economically burdensome generally does not excuse performance.”); Ballou v. Basic Constr. Co., 407 F.2d 1137, 1140–41 (4th Cir. 1969) (same, interpreting Virginia law). The Uniform Commercial Code adopts similar impracticability language governing sales contracts to excuse sellers from delays in delivery or non-delivery, assuming the seller has not agreed to greater language in the contract. See Uniform Commercial Code § 2-615. The event rendering performance impracticable must have been unforeseeable. See, e.g., Bende & Sons Inc. v. Crown Recreation, Inc., 548 F. Supp. 1018, 1022 (E.D.N.Y. 1982) (concluding seller’s performance of delivery was not excused by impracticability following a train derailment that destroyed the goods because even though the parties may not have specifically contemplated a train derailment, such an event was reasonably foreseeable and could have been provided for in the contract).

Although not as likely to be triggered commercial impracticability, some jurisdictions recognize a common law doctrine of contractual frustration of purpose to excuse performance. That is, where a party could still perform but performance is excused because the principal purpose of the contract was substantially frustrated without the party’s own fault because of an event, the non-occurrence of which was a basic assumption on which the contract was made. Restatement (Second) of Contracts § 265; see, e.g., U.S. v. Gen. Douglas MacArthur Senior Vill., Inc., 508 F.2d 377, 381 (2d Cir. 1974) (explaining that a frustration of purpose defense “has been limited to instances where a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party”). The central inquiry to this concept is whether the parties contracted on a basic assumption that a particular contingency would not occur. Gustavia Home, LLC v. Hoyer, 362 F. Supp. 3d 71, 90 (E.D.N.Y. 2019); see also Ury v. Di Bari, No. 1-15-0277, 2016 WL 2610167, at *5 (Ill. App. Ct. May 5, 2016) (rejecting frustration of purpose defense to real estate contract due to buyer’s sudden neurological illness and hospitalization while outside United States given contract’s purpose of the sale of property was not frustrated).

Takeaways 

As a threshold matter, an organization considering invoking a force majeure provision or seeking relief pursuant to a common law impossibility or impracticability doctrine should

• document efforts to perform the contract and the basis for its inability to perform,
• review the provision for bilateral or mutual applicability, and
• assess its obligations under any notice provisions.

The force majeure jurisprudence demonstrates that courts analyzing COVID-19-related force majeure declarations will likely construe such provisions narrowly and with an eye toward the precise basis for non-performance. It appears most likely that disputes surrounding the invocation of a force majeure defense will center less on whether a particular precipitating event constitutes a force majeure event and more around the causal relationship between the force majeure event and a party’s alleged nonperformance. In certain cases, the basis for non-performance (i.e., a government order prohibiting certain action) may be an enumerated force majeure event distinct from the overarching cause of the chain of events (a viral pandemic) leading to non-performance. 

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