Force Majeure
Hurricane Harvey made performance impossible—now what?
By Sean M. McChristian
Hurricane Harvey may have been one of the United States’ most costly
natural disasters of all time, but it was not the first natural disaster
to strike our state and it will certainly not be the last. Texas has
seen property, businesses, and lives destroyed by hurricanes, floods,
tornadoes, and fires. These terrible events have wide-ranging impacts,
including rendering parties unable to perform their contractual
obligations. For example, a residential builder may have contracted with
a homeowner to complete construction of a house by a particular date,
but may have been unable to work on the project for weeks due to a
hurricane and subsequent flooding. If the builder is unable to deliver
the completed house on time, is the builder liable for breaching the
residential construction contract? Similarly, what happens if a roofer
contracts with a homeowner to shingle the roof of a home, but when the
roofer has completed part of the work, much of the house and the roof is
destroyed by a wildfire? Does the roofer have a duty to shingle the roof
when the home is eventually reconstructed and could the roofer be liable
for breach of contract if he or she refuses to do the work? This article
highlights certain issues that should be examined when assessing a
party’s liability for contract claims arising from the difficulties
created by natural disasters.
Force Majeure Clauses
The general rule “is that an act of God does not relieve the parties
of their obligations unless the parties expressly provide
otherwise.”1 To avoid liability in these instances,
“contracts frequently contain ‘force majeure’ clauses, which are
enforceable under Texas law.”2
The theory of force majeure has existed for many years. “Often likened
to impossibility, it historically embodied the notion that parties could
be relieved of performing their contractual duties when performance was
prevented by causes beyond their control, such as an act of
God.”3
Today, “[t]he scope and effect of a ‘force majeure’ clause depends on
the specific contract language, and not on any traditional definition of
the term.”4 So, “when the parties have themselves defined the
contours of force majeure in their agreement, those contours dictate the
application, effect, and scope of the force majeure provision’ and
reviewing courts ‘are not at liberty to rewrite the contract or
interpret it in a manner which the parties never
intended.’”5
Texas courts generally recognize that the purpose of a force majeure
clause is to excuse non-performance of obligations only when caused by
circumstances beyond the reasonable control of the party or by an event
“which is unforeseeable at the time the parties entered into the
contract.”6 However, contractual obligations cannot be
avoided by a claim of force majeure “simply because performance has
become more economically burdensome than a party
anticipated.”7
As a general matter, under Texas law, a party seeking to invoke force
majeure to excuse its non-performance is not required to exercise
reasonable diligence.8 However, where a contract expressly
includes this requirement, reasonable diligence must be shown in order
to invoke a force majeure provision and excuse a party’s
non-performance.9 The Texas Supreme Court has defined
reasonable diligence as “such diligence that an ordinarily prudent and
diligent person would exercise under similar
circumstances.”10 This term is highly subjective and is
“incapable of exact definition.”11 Therefore, “[i]ts meaning
must be determined by the circumstances of each case.”12
Practitioners should be aware that while force majeure clauses are now
commonly found in many forms of contracts, there are typically notice
requirements and notice deadlines included in the provisions and the
notice requirements may be a condition precedent to seeking relief under
the force majeure provision. The force majeure provision may require
that notice of the force majeure event be provided to a specific
individual within a certain amount of time after the commencement of the
force majeure event. Consequently, it is important to review the
applicable contract near to the onset of the event in order to determine
whether any immediate action must be taken to secure a party’s rights.
A basic force majeure clause might state:
Force Majeure. Any delay in or failure of performance by either party under this Agreement will not be considered a breach of this Agreement and will be excused to the extent caused by any occurrence beyond the reasonable control of such party including, but not limited to, acts of God such as fires, hurricanes, floods, or tornadoes.
In the above example of a residential builder whose performance was delayed by a hurricane and subsequent flooding, a clause like this would likely be outcome determinative. If this provision was included in the residential construction contract between the builder and the homeowner, then the builder’s delay in completing the home would be excused to the extent that the delay was caused by the hurricane and subsequent flooding. If a similar provision was not included, then the builder may be exposed to liability, but there is a common law defense that may apply in the absence of a force majeure provision.
The Doctrine of
Impossibility of Performance
If a contract does not contain a force majeure clause, all hope is not
lost because a breaching party may assert that its failure to perform is
excused by the doctrine of impossibility of performance. It should be
noted, though, that the “impossibility defense has been referred to by
Texas courts as impossibility of performance, commercial
impracticability, and frustration of purpose,”13 but there is
no functional distinction between the doctrines.
No matter whether the defense is referred to as impossibility of
performance, commercial impracticability, or frustration of purpose, the
Texas impossibility defense is based on Section 261 of the Restatement
(Second) of Contracts, which provides:
Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.14
Texas has also enacted the Uniform Commercial Code, which contains a similar provision that states:
Delay in delivery or non-delivery in whole or part by a seller ... is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made[.]15
While there
is no definition of the term “impracticable” in the Restatement (Second)
of Contracts or the UCC, the restatement does state that the
impossibility defense generally applies in three instances: (1) the
death or incapacity of a person necessary for performance, (2) the
destruction or deterioration of a thing necessary for performance, and
(3) prevention by governmental regulation.16
There are two general types of impossibility: (1) objective and (2)
subjective.17 Objective impossibility relates solely to the
nature of the promise.18 Something is objectively impossible
if “the thing cannot be done,” such as an inability “to perform the
promise to settle [a] claim by entering an agreed judgment in the
lawsuit which had been dismissed” prior to the completion of the
agreement.19 Subjective impossibility is due wholly to the
inability of the individual promisor.20 Something is
subjectively impossible if “I cannot do it,” such as when a promisor’s
financial inability to pay makes it impossible for the promisor to
perform.21 “Objective impossibility can serve as a defense in
a breach of contract suit.”22 However, a party cannot escape
contract liability by claiming subjective impossibility; subjective
impossibility does not discharge a duty created by a
contract.23
Finally, in order for a party to assert that its performance was
impossible or impracticable, the party must have used “reasonable
efforts to surmount the obstacle to performance.”24 The
restatement adds that “a performance is impracticable only if it is so
in spite of such efforts.”25
Given the foregoing, what happens to the roofer that contracted to
shingle the roof of a house that burns partway through his or her
performance? If both the homeowner and the roofer understood that the
existence of the roof was necessary for the performance of the roofer’s
work and the destruction of the roof made the roofer’s work
impracticable, then the roofer’s duty to shingle the roof is discharged
so long as the roofer used reasonable efforts to surmount the obstacles
to his or her performance.
Conclusion
When presented with a contractual dispute related to a natural
disaster like the ones described above, the prudent practitioner should
first determine whether the contract at issue contains a force majeure
clause. However, even if the contract does not contain a force majeure
clause, a breaching party may assert that its failure to perform is
excused by the doctrines of impossibility of performance, commercial
impracticability, or frustration of purpose, and thereby avoid liability
for the alleged breach.TBJ
SEAN M. McCHRISTIAN
is a partner in the construction section of Porter Hedges. He is
certified in construction law by the Texas Board of Legal
Specialization. He represents owners, developers, contractors,
subcontractors, suppliers, sureties, and design professionals in
construction-related disputes and transactions.