How Do California Courts Handle Force Majeure Clauses in Contracts?
April 10, 2020
When two or more parties enter into a contract in California, each party makes a promise to perform or abstain from an action. When one party fails to act according to the terms of the contract, the other party or parties may be able to obtain damages for breach of contract. What happens, though, when the party that is supposedly in breach was not able to meet its obligations because of events that were completely out of its control? The term “force majeure” can refer to both a defense to breach of contract, based on the assertion that performance of the contract was impossible, and a clause commonly found in contracts that excuses or suspends a party’s obligation to perform. California courts tend to construe force majeure clauses narrowly, so careful drafting is important.
What Is Force Majeure?
“Force majeure” roughly translates from French to “superior force.” It refers to an act or event that is completely beyond the control of any of the parties to the contract.
What Events Count As Force Majeure?
Natural disasters, such as earthquakes, hurricanes, or tornadoes, are sometimes known as “acts of God.” Force majeure describes something broader than that. To put that another way, while all acts of God could be described as force majeure events, not all force majeure events are acts of God. The California Supreme Court described force majeure in 1946 as follows: “Under the particular circumstances, there was such an insuperable interference occurring without the party's intervention as could not have been prevented by the exercise of prudence, diligence, and care.” Pacific Vegetable Oil Corp. v. CST, Ltd., 29 Cal.2d 228, 238 (Cal. 1946).
Force majeure therefore includes human-caused events like labor strikes, war, or a pandemic. In Pacific Vegetable Oil, a contract dispute arose when one party failed to deliver two shipments of coconut products from Fiji to San Diego, California. The contracts were signed in October and November 1941. The outbreak of World War II in the Pacific in the following month was force majeure, excusing performance of the contract.
Force majeure typically does not include naturally occurring events that are highly predictable. For example, a rainstorm might not excuse performance of a contract to use an outdoor venue in an area that is prone to regular rainfall. If the rainstorm also produced high winds or tornadoes, however, that could constitute force majeure.
Events that are within one or more parties’ control are also usually not considered force majeure. This is especially true if an event was caused by the misconduct or negligence of the party who wants to be excused from performance. Suppose, for example, that a fire destroys a facility, and the owner is therefore unable to allow its use for an event. The owner cannot claim force majeure if they started the fire.
What Is a Force Majeure Clause?
A force majeure clause allows the parties to a contract to be excused from performance if an unforeseen event beyond their control makes it impossible for them to do whatever they agreed to do in the contract. A clause could say that the party is excused from their contractual obligations altogether, meaning that the other party or parties waive their right to claim breach of contract. It could also delay the time for performance to allow for repairs or rebuilding.
Impossibility of Performance
Force majeure is closely related to the common-law defense of impossibility of performance. The California Supreme Court has ruled that if “the doing of the thing contracted for is...impossible, neither party is bound to its performance.” Eucalyptus G. Assn. v. Orange C. N. L. Co., 174 Cal. 330, 334 (Cal. 1917).
The California Legislature has affirmed this view in two provisions of the “maxims of jurisprudence” in the California Civil Code. Section 3526 states that “no man is responsible for that which no man can control.” Section 3531 states that “the law never requires impossibilities.” The California Supreme Court, however, has imposed a high standard of proof, holding that performance of a contract may be excused only if “in spite of skill, diligence, and good faith on [a party’s] part, performance became impossible or unreasonably expensive.” Oosten v. Hay Haulers etc. Union, 45 Cal.2d 784, 789 (Cal. 1955).
Contract Terms Regarding Force Majeure
Section 1511(2) of the Civil Code states that non-performance “is excused...when it is prevented or delayed by an irresistible, superhuman cause,” although it makes an exception when “the parties have expressly agreed to the contrary.” As mentioned above, a force majeure clause can excuse or delay performance if an unforeseen event occurs. It can also, with all parties’ agreement, require performance despite certain events.
The parties to a contract could agree that, for example, specific intervening factors like a labor strike would not affect their contractual obligations. They could also agree to give greater weight to some events than others. Factors like local natural disaster risks and political or economic conditions play a large role.
California Courts and Force Majeure
Courts in California tend to construe force majeure clauses narrowly. The Civil Code is clear that a court cannot hold a party liable for breach of contract when performance was impossible because of external forces. As the California Supreme Court made clear in Pacific Vegetable Oil, courts should analyze whether an event made performance impossible on a case-by-case basis, or “under the particular circumstances.”
If the event is not something for which the party assumed any ordinary risk, a force majeure clause would probably excuse the party from performance. On the other hand, if the event is not mentioned in the contract and is a general risk of doing business, performance is not excused.
In Horsemen's Benevolent v. Valley Racing Ass'n, 4 Cal.App.4th 1538 (Cal. App. 5th, 1992), the contract had a force majeure clause that mentioned specific regulatory changes related to horse racing. The court held that other regulatory changes, which were not addressed in the contract, did not excuse performance. Somewhat similarly, a California appellate court ruled in an unpublished 2010 decision, Citizens of Humanity, LLC v. Caitac International, Inc., that an economic downturn in a foreign market did not constitute force majeure because this is the sort of risk that businesses routinely choose to take.
If you have a contractual dispute that you would like to discuss, please call Bona Law at 858-964-4589 or send us a message or email.