The coronavirus (COVID-19) pandemic has already caused financial hardship to small businesses, business owners, and unemployed individuals across Florida. Many individuals are concerned about their ability to pay financial obligations such as credit card bills, mortgage payments, and bank loans.
Does the unforeseeability of the coronavirus outbreak allow you to use a force majeure clause to get out of a contract or excuse an inability to pay debts?
What is a Force Majure Clause?
Some legal contracts contain what is known as as force majeure clause. A force majeure clause is a term of a contract that excuses either party’s inability to pay or perform due to unforeseen circumstances beyond a party’s control.
Florida law defines a force majeure clause as a contractual provision changing or excusing payment or performance made impossible or impracticable, especially as a result of an event that the parties could not have reasonably anticipated.
In the past, courts have determined that force majeure events include wars, weather disasters, terrorism, and government action. In time, Florida courts will rule on whether the consequences of the coronavirus constitute a force majeure.
When Does Force Majure Clause Apply in Florida?
Florida law has no “common law” force majeure defense to inability to pay a debt. There is no Florida force majeure statute. Therefore, a Florida debtor may invoke a force majeure defense for non-payment only if a force majeure paragraph is included in the contract with the creditor.
Typical credit card agreements, residential leases, and home mortgages do not have force majeure provisions. Some commercial loans and commercial leases include force majeure excuses. Force majeure provisions are more often included in performance agreements such as construction contracts, especially contracts with time deadlines for performance.
If your agreement with your creditor includes a force majeure clause, the enforcement of the clause is governed by Florida court decisions. Florida courts have said that each particular contract’s force majeure language governs the definition of force majeure and the enforceability of the force majeure defense between parties to the contract. Whether a debtor can effectively assert a force majeure defense will involve a detailed inquiry into the force majeure language found within the contract with the creditor.
Does Coronavirus Outbreak Trigger the Force Majeure Clause?
Here are a few things for contract debtors to consider when determining if the coronavirus pandemic is sufficient to trigger the force majeure clause.
Most contract definitions of force majeure characterize force majeure events as being beyond the control of either party. In other words, the contract usually requires that the unforeseen event make the contractual obligation impossible to perform.
Payment of debt is not beyond a debtor’s control where the government does not make payment impossible. Examples of impossibility, for example, would be if because of the coronavirus the Florida government closed your bank or denied access to your money. Another example would be is if Florida banned your employees from a job site where a contract required you to perform. Neither of these situations are happening.
In addition, Florida courts have previously held that changes in world events that change the profitability or financial consequences of a contract do not constitute a force majeure that excuse non-payment or non-performance.
To summarize, the coronavirus situation will probably not constitute a force majeure excuse for non-payment of credit card, mortgage, or residential tenant debts.
Some previously signed commercial contracts and debt agreements may include force majeure excuses for non-payment. Certainly, the coronavirus outbreak is likely to constitute an unforeseen event. But merely being an unforeseen event is likely not enough to trigger force majeure clauses in Florida. Even if the Florida government shuts down the state and orders people to stay home, as long as it is not impossible to perform on the contract, the force majeure clause will probably not apply.
Although it may feel like it, losing your job or your business probably does not constitute a impossibility in terms of paying a financial obligation.
People likely will pay much more attention to force majeure language in future legal contacts subsequent to resolution of the Corona virus.