Written by: Derek M. Graves
During the past year, Louisiana businesses have endured substantial economic hardship due to Covid-19 and the aftermath of hurricanes. The pandemic alone has made it difficult for many local businesses to perform their contractual duties due to lack of resources and paying customers. Additionally, hundreds of businesses suffered loss of property and resources for months after Hurricane Ida made landfall. Unfortunately, Louisiana businesses know this trend all too well given the history of powerful storms to ravage the state. Force Majeure clauses, however, may provide relief for businesses for their failure to perform contractual obligations.
Force Majeure is defined as a fortuitous event that can neither be anticipated nor controlled. The Louisiana Civil Code defines a fortuitous event as one that, at the time the contract was made, could not have been reasonably foreseen.[1] Events that are deemed not reasonably foreseeable include acts of nature such as floods and hurricanes[2] and has been expanded to include man-made disturbances including protests, computer hacks and terrorist attacks.
To prove up this defense, the non-performing party must show that a qualified fortuitous event rendered performance of a contractual duty impossible.[3] The obligor is not released from his or her duty to perform an obligation solely because it has been made more difficult or burdensome by a fortuitous event.[4] The fortuitous event must pose an insurmountable obstacle in order to excuse the obligor’s nonperformance.[5]
For example, in Schenck v. Capri Construction, Co. a couple contracted a company to complete renovations to their home. The homeowners thereafter tried to cancel the contract pursuant to the force majeure defense after a hurricane damaged the home before the renovations began. The homeowners further argued that performance of the contact (e.g. paying the contractor) was more difficult because of the expenses in repairing the hurricane damage. The court found that performance of the contract was not rendered impossible but only more difficult or burdensome.[6] As such the force majeure defense was inapplicable.
Force Majeure is more appropriate where a cruise company suffers tornado damage to its ships prior to departure. The tornado is likely a fortuitous event that is reasonably unforeseeable. Further, it is likely impossible for the cruise ships to depart due to the damage. The court may still investigate whether the company has any reasonable alternatives or replacement ships available before applying the defense. Essentially the company must prove that the tornado made it impossible to deport, rather than economically inconvenient.
Louisiana has not yet established a bright line rule as to whether Force Majeure can be applied to a worldwide pandemic. The critical issue in applying the Force Majeure defense to Covid-19 remains whether the performance of an obligation (i.e., paying monthly rent) is merely economically burdensome rather than impossible.
As Louisiana continues to see an increase in the frequency of severe hurricanes, we can expect that more business contracts will include Force Majeure clauses. As for the application of force majeure to the pandemic, we can expect that courts will soon opine on the scope of this defense.
[1] La. Civil Code. Art. 1875.
[2] Black’s Law Dictionary 673-74 [Pg 8] (8th ed. 2004).
[3] La. Civil Code Art. 1873.
[4] Schenck v. Capri Constr. Co., 194 So.2d 378, 380 (La. Ap. 4th Cir. 1967).
[5] Payne v. Hurwitz, 978 So.2d 1000, 1005 (La. 1st Cir. 2008).
[6] Schenck, 194 So.2d at 380.