The COVID 19 pandemic has caused the closing of thousands of offices, retail stores and restaurants nationwide. Can the pandemic also affect the enforceability of the millions of contracts through which we all conduct business? Perhaps.
There are two possible ways in which the COVID 19 pandemic may affect the enforceability of a contract in Georgia. The first is contractual, through a contract provision commonly known as a “force majeure” clause; the second is statutory, through the doctrine of “impossibility” which is codified at OCGA § 13-4-21. Though somewhat similar in effect and intent, force majeure and impossibility are different concepts, and therefore require separate discussion.
As every attorney surely recalls from his/her first year contracts class, the term “force majeure” means “superior force.” Contracts often have “force majeure clauses” that determine which party bears the risk of a contract not being completed due to some “superior force.” This “superior force” can be any event which the parties wish to address, although such a “superior force” usually is an event beyond the parties’ control. For instance, construction contracts often have “force majeure” clauses that determine the extent to which the builder will be excused from completing construction on time due to some type of natural event, such as a hurricane or tornado; the loan agreement likely will have a similar clause. Force majeure clauses are not, however, limited to some type of natural event – thus, a manufacturing contract may determine whether a manufacturer is excused from completing an order if a nation which is the sole source of a necessary raw material refuses to export that raw material. Force majeure clauses also may address such situations generally, such as by stating which party bears the risk of an “unanticipated increase in labor costs” or “an act of God.”
Each contractual force majeure clause, of course, is unique. Whether any particular contract’s force majeure clause will excuse a party’s performance of its obligations under a contract will be determined by applying the standard rules of contract interpretation to the force majeure clause. See Lodgenet Entertainment Corp. v. Heritage Inn Assocs., L.P., 261 Ga. App. 557 (2003). This means that a court faced with this decision will follow the usual “three steps of contract construction” rule – first, if the force majeure clause is clear and unambiguous, the Court will enforce the clause according to its terms; second, if the Court finds a force majeure clause to be ambiguous, the court will attempt to resolve the ambiguity by applying the usual rules of construction; finally, if the ambiguity cannot be resolved by the application of those rules, a question of fact will be presented for a jury to determine whether the reason for a party’s failure to perform satisfies a contract’s force majeure clause. See generally, Larkins, Georgia Contracts: Law and Litigation § 9:1 (2nd Ed.).
“If performance of the terms of a contract becomes impossible as a result of an act of God, such impossibility shall excuse nonperformance, except where, by proper prudence, such impossibility might have been avoided by the promisor.” OCGA § 13-4-21. The term act of God “applies only to events in nature so extraordinary that the history of climatic variations and other conditions in the particular locality affords no reasonable warning of them.” Sampson v. Gen’l. Elec. Supply Co., 78 Ga. App. 2 (1948). Neither World War II, Felder v Oldham, 199 Ga. 820 (1945) nor the Great Recession of 2008, Elavon Inc. v. Wachovia Bank, N.A., 841 F. Supp. 2d 1298 (N.D. Ga. 2011), satisfy this standard.
Whether a pandemic or epidemic would be considered “an act of God” has not been addressed by the Georgia courts; therefore, whether a party would be excused from performance under a contract due to the COVID 19 pandemic appears to be an open question. Notably, however, the Georgia Supreme Court has held that the obligation to pay money under a contract is not excused, even if the reason for non-payment is that the payor fell ill and, as a result thereof, became incapacitated and died. Hipp v. Fidelity Ins. Co., 128 Ga. 491 (1907). The basis for this decision is that impossibility which is simply personal to a party and not inherent in the act to be performed will not excuse performance. This principle, known as “subjective impossibility,” continues to be applied to hold that a party’s inability to pay or obtain money will not satisfy the standard for impossibility. E.g., Hampton Island LLC v HAOP, LLC 306 Ga. App. 542 (2011). Therefore, if a party is obligated to pay money under a contract, that obligation almost certainly will not be excused by anything resulting from the COVID 19 pandemic. If, however, a party’s obligation is something other than merely to pay money, the impact of COVID 19 may well excuse that performance under Georgia’s “impossibility” rule.
The attorneys at Chilivis Grubman represent individuals and businesses of all types and sizes in connection with contract-related litigation. If you need assistance with such a matter, please contact us today.