Wallaces Farmer

Legal Issues: How “force majeure” contract clauses are interpreted in the time of COVID-19.

Erin Herbold-Swalwell

April 24, 2020

4 Min Read
grain bins
YOUR RIGHTS: Understand your rights under the contract when performance to meet the terms of the contract becomes impossible and not when it simply becomes burdensome. Farm Progress

The COVID-19 crisis has hit farmers hard — bringing new challenges to deal with in an already uncertain farm economy. This month, we’ll focus on an issue affecting producers involved in grain, livestock and other contractual arrangements called “force majeure.”

Never heard of this term? Most people haven’t, because discussion of such a provision only comes up in times of disaster or other “acts of God.”  

Black’s Law Dictionary describes “force majeure” as an “event that can be neither anticipated nor controlled.” The term is typically used as a clause in a contract that allows for the nonperformance or suspension of contract provisions when performance becomes impossible or impracticable due to events that parties to the contract could not foresee. In the face of a global pandemic, farmers might find themselves in the position of arguing against the use of these clauses or choosing whether to claim a force majeure event to excuse their own performance. 

Force majeure contractual provisions may also be referred to by other legal doctrines, such as impossibility of performance, frustration of purpose, or commercial impracticability. In any event, these doctrines may be raised as defenses for nonperformance of a contract in Iowa — say the Iowa courts.

Iowa case law indicates that even if a contract contains no force majeure clause or related language, courts may still relieve a party of its obligations if they can show impossibility or impracticability of performance. This area of the law also generally provides that a party’s performance could be excused when its performance is made impossible due to government action. However, there is a high standard set forth by the courts that a party must satisfy before making such claims. 

Understand rights under contract 

When dealing with issues of nonperformance of contracts and clauses like these, there are some important things farmers need to understand and keep in mind. First, each type of contract is unique, and oftentimes parties have negotiated different terms in similar contracts. It is important to read and understand the contracts you have in place or are negotiating. As always, seek legal counsel in the interpretation of these matters and to help you understand your rights under the contractual arrangements you are involved in. 

Producers should look at whether the language in their force majeure clauses contain specific examples of “force majeure events” or whether the language is worded more broadly. For instance, does the clause specifically refer to “pandemics” or governmental actions, such as quarantine orders, beyond the control of a party? Other provisions of the contract may also be relevant to this issue, such as any provisions requiring a party to “mitigate its damages” (or lessen their effect) before seeking to end or suspend a contract. 

In a nutshell, the courts have said that a party to a contract seeking to invoke a force majeure provision should make sure it has attempted to comply with the contract and performance is not excused if the event may reasonably have been anticipated. It will most likely be argued that a global pandemic such as the COVID-19 and its repercussions currently experienced by the ag sector weren’t “reasonably foreseeable.” However, it is important to understand that the law still generally holds that there is a high standard in order to be excused from a breach of contract. 

The event making performance impossible or impracticable must rise to a level beyond that of a party simply incurring some economic damage if they were to fulfill the contract and must be so severe that no one would have assumed the responsibilities of the contract had they known what would occur worldwide. A court may find that the termination of the entire contract is not warranted given the circumstances where merely suspending a contract for a period of time may be justified given the event that has occurred. 

Help in times of uncertainty 

Under Iowa law, if a contract dispute does arise, mediation between the parties is required for production livestock feeding disputes and some other ag disputes. Farmers suffering from these issues, should contact their banker right away to determine the best course to get through the financial aspects of the situation. Many bankers say if a farmer has equity, the best option may be to “extend, rewrite, and renew” his or her financial arrangements with the bank now before the situation gets worse.  

The Iowa State Ag Decision Maker website is a helpful source of information regarding government assistance that may be provided to producers through USDA or even a government stimulus package. Plan for the present and make your plan flexible enough to make changes in the future. 

Herbold-Swalwell is an attorney with Brick-Gentry in Des Moines. 

 

 

 

Read more about:

Covid 19

About the Author(s)

Erin Herbold-Swalwell

Erin Herbold-Swalwell is an attorney with Wickham & Geadelmann PLLC.

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