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Impossibility To Perform Under A Contract (“Force Majeure”)

In these unprecedented and challenging times brought about by the Coronavirus and the governmental response thereto, there is a specific contract term that exists in many contracts which most people consider to be just "boiler plate". It is known as the "Force Majeure" clause, and it seldom comes into play.It generally identifies occurrences that if they take place would excuse a party's performance under a contract. This concept is based on old basic principles, two of which are as follows:

"Discharge By Supervening Impracticability: Where, after a contract is made, a party's performance is made impractical without his [or her] fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his [or her] duty to render that performance is discharged, unless the language or the circumstances indicate the contrary." Restatement, Contracts 2d, §261.

"Prevention By Governmental regulations or Order:If the performance of a duty is made impractical by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made." Restatement, Contracts 2d, §264.

These principles do not always resolve all issues neatly when a party's performance is rendered impractical.For example, one would generally argue that performance that has been prevented by an executive order issued by a governor of a state is something that would excuse a party's performance. However, there may be some loose ends. For example, what happens to certain things such as deposits?Parties to a contract can and often do draft for what happens to deposit monies should a force majeure event take place.The contract language could be as general as "the deposit monies are non-refundable regardless of any occurrence, including any force majeure event".Thus, in that case the parties will have created the law of their own contract and would not have to rely upon the interpretation of old legal contract principles. Without such a clear expression, parties may be left to argue or negotiate the return of the deposit.

The lessons from today's circumstances are: i.) review your contracts to see if you are able to take advantage of or if you are exposed by any existing force majeure clauses; and ii.) be mindful in the future when entering into contracts to carefully review and appropriately set forth the definition of a force majeure event and what happens should a force majeure event take place.

If you have any questions related to your contract obligations or contract language, whether current contracts or future contracts, feel free to contact Nehmad, Perillo Davis & Goldstein, PC and ask for Anthony M. Bongiovanni, Esquire (609) 927-1177.

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