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COVID-19 and force majeure in agricultural contracts

Contributed by Brianna J. Schroeder Published on 01 April 2020

Many contracts include a provision called “force majeure” (fancy term for superior force). Force majeure means unforeseeable circumstances that prevent a party from fulfilling its contractual obligations.

This provision is often boilerplate language and rarely the cause of any great disagreement between parties when negotiating the agreement. But now, as COVID-19 brings the world economy to a crawl, businesses and individuals should review their contract language to see whether a force majeure provision is triggered.

Contracts – including agreements for production agriculture, contract growers and custom feeding – often include force majeure language which, at least on its face, excuses a party’s failure to satisfy all its obligations based on some unpredictable external force. Some contracts give examples like a work strike, acts of God or war. New governmental regulations could qualify too. A force majeure event does not require any human intervention – hence the frequent act of God example.

The key is that the parties cannot have reasonably foreseen the event. So a standard winter storm or flat tire doesn’t quite fit the bill. Finally, the event must be beyond the control of the parties. This means one party’s leaking roof or truck problems won’t qualify as a force majeure event. Often, the contract includes requirements that a party give notice to the other parties if it intends to trigger or rely on the force majeure provision. 

This brings us to the current coronavirus or COVID-19 outbreak. Does it qualify as a force majeure event that excuses a party’s noncompliance with contractual provisions? Predictably, it depends. Courts do not uniformly apply these provisions in the same way – instead, courts look at the specific language and the parties’ intent at the time they signed the contract.

Courts will assume the parties used the specific language in the contract because that language describes what the parties agreed on. So if a force majeure provision says nothing about foreseeability, a court may decide that foreseeability has nothing to do with that specific force majeure clause. The scope and effect of a force majeure provision depends entirely on the specific contract language, not any general rule about such provisions. 

In the agricultural world, we all depend on contracts (whether written or oral – but that’s a separate article). Livestock growers have contracts with integrators. Egg processors have supply agreements with farms. Trucking companies have contracts with grain businesses. Produce farms have agreements with farmers markets. All of these agreements may be impacted by the virus itself, the resulting governmental shutdowns or by other interruptions to the supply chain. A force majeure provision might provide either party with a way to avoid penalties for failing to perform, but it depends on the specific language used in the contract. 

Contact your attorney for legal advice on whether your contracts may be affected by the COVID-19 outbreak and resulting economic impacts. Every contract is different, so each answer may be different. And wash your hands.  end mark

This originally appeared on the Schroeder Ag Law Blog, March 26, 2020

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