Key Considerations For Louisiana Contract Parties In The Face Of Covid-19-Related Failures to Perform

April 1 2020 | Committees




OVERVIEW

The COVID-19 pandemic's rapid onset has dramatically disrupted almost every aspect of our lives. In a matter of days, vibrant springtime plans of festivals, conferences, weddings, vacations, and social gatherings have been replaced with words and phrases like "quarantine," "flattening the curve," "social-distancing," "postponed," and "canceled."

Difficult decisions made as a result of the COVID-19 pandemic have certainly yielded emotional disappointment. On a more technical level, reactions to the COVID-19 pandemic have also resulted in, and will continue to result in, many unperformed or underperformed contractual obligations.

This article provides several key questions for parties to Louisiana contracts to consider when analyzing failures to perform contractual obligations during these unprecedented circumstances. This article pertains to Louisiana contracts, generally. Other laws may apply to specific types of contracts, such as leases.
 

DOES YOUR CONTRACT HAVE A FORCE MAJEURE CLAUSE?

A "force majeure" clause states, in essence, that a party is excused (i.e., not liable) for not performing a contractual obligation if its performance is "prevented" or "hindered" by, or if its non-performance is "caused" by, or "due to," an event, condition, or other circumstance that is "beyond the party's control," or "beyond the party's reasonable control," or "not reasonably within the party's control," or similar language.

Importantly, the precise language of a force majeure clause varies from contract to contract. As a result, the presence of a force majeure clause in a contract is not, in and of itself, dispositive of whether a COVID-19-related failure to perform under that contract is excused.   Instead, the answer to that question will largely depend on the language used in the clause.


DOES THE FORE MAJEURE CLAUSE INCLUDE AN INCLUSIVE OR EXCLUSIVE LIST OF EVENTS?

A typical force majeure clause contains a list of circumstances that constitute a force majeure event, such as Acts of God, war, government action, labor strikes, and so on. The length, content, and detail of the list vary considerably from contract to contract. The content of a force majeure clause's list, and whether such a list is an inclusive list of examples or an exclusive list of events, will play a role in determining whether a COVID-19-related failure to perform is covered under the force majeure clause.


DOES THE FORCE MAJEURE PROVISION REQUIRE NOTICE AND/OR MITIGATION?

A typical force majeure clause will require the party claiming excuse to give written notice of the circumstance claimed to be a force majeure within a certain period of time. Additionally, the clause may require that such notice be delivered through a certain method. The force majeure clause may also expressly require the party claiming excuse to use some degree of effort to mitigate the circumstance constituting the force majeure.


DO THE LOUISIANA CIVIL CODE'S GENERAL PROVISIONS ON OBLIGATIONS APPLY?

The Louisiana Civil Code provides a possible "force majeure" excuse for each party to a contract governed by Louisiana law: Civil Code art. 1873. To sustain the excuse and thus avoid liability for a failure to perform a contractual obligation, a party must show two key elements: that there was a "fortuitous event" and that it made the performances sought to be excused "impossible."

Importantly, given the very recent onset of COVID-19-related failures to perform, the applicability of the Louisiana Civil Code's general provisions on obligations to such failures remains to be seen.


KEY TAKEAWAYS

Parties to Louisiana contracts dealing with COVID-19-related failures to perform should review their contracts to determine whether these contracts contain force majeure clauses. If so, parties should review these force majeure clauses carefully to determine whether the clause applies to the failure to perform and to analyze whether all notice and mitigation requirements under the clause have been met. Parties should also be aware that the Louisiana Civil Code's general provisions on obligations could potentially work to excuse certain COVID-19-related failures to performance.


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The information contained herein does not constitute a legal opinion and should not be relied upon by the reader as legal advice or be regarded as a substitute for legal advice. NOBA thanks the lawyers of Stone Pigman Walther Wittmann, LLC, for their assistance in contributing information for this article.



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