Commercial Contracts: Force Majeure Clauses in Washington

  • By:JP Diener

As many businesses struggle to fulfill their contractual obligations during the COVID-19 pandemic and government-mandated shut down, it is important for business owners to review their contracts for a “force majeure” clause. Such clauses may prove to be a life saver for businesses large and small.

“Force majeure” (meaning “superior force”) clauses often operate to excuse one or both parties’ performance under a contract following some unforeseen or catastrophic event. Most commercial contracts contain a force majeure clause, but not all clauses are created equally. In Washington, force majeure clauses are interpreted according to their plain language, much like other contractual provisions. They are not construed strictly nor liberally. Accordingly, the exact language of the force majeure clause is critical.

When analyzing whether a force majeure clause will excuse a party from performing, there are two general issues to consider. The first is whether the disrupting event is covered under the language of the force majeure clause. The second, is what relief the force majeure clause provides. Some force majeure clauses may allow a party to only delay performance or be excused from partial performance (i.e. installment contracts). Others may allow for cancellation of the entire contract.

These concepts are illustrated in a 2005 Washington Court Case, Hearst Communications, Inc. v. Seattle Times Co., 154 Wn.2d 493, 115 P.3d 262 (2005). The Court addressed a lawsuit between a publishing company and a newspaper over the scope of the force majeure clause contained within the parties’ joint operating agreement. Specifically, the dispute was over whether the force majeure clause prevented the Seattle Times from invoking the escape clause in the contract and terminate the agreement. The court considered the plain language of the force majeure clause. Under the terms of the agreement, the escape clause could be trigged by three consecutive years of losses. In this instance, the losses were largely caused by a strike, the world trade center terrorist attacks, and the ensuing recession. Hearst argued the force majeure clause prevented the Times from exercising the escape clause. However, the plain language of the clause relieved a party from liability arising from failure/delay of performance caused by a covered event, which included strikes.

The court in Hearst recognized that although the parties’ force majeure clause covered strikes, the remedy it provided was to excuse the parties from liability. Accordingly, because the force majeure clause was silent as to the escape clause, it did not have any effect on the Times’ exercising the escape clause.

In addition to the issues of coverage and scope addressed above, when reviewing a force majeure clause, it is important to identify any notice provisions. Such provisions may require a party who seeks to exercise the clause to notify the other party first. Failure to do so may result in a breach of contract not excused by the force majeure clause or otherwise prevent the party from exercising the force majeure clause.

If COVID-19 or another catastrophe has left you or your business unable to perform contractual obligations, you may be able to find some relief in your contract’s force majeure clause. While the above discussion addressed some of the major issues regarding force majeure clauses, you should consult with a contracts lawyer if something is preventing you from performing under your contract. The lawyers at Feltman Ewing, P.S. are here to help.

–Alex Wilson, Attorney at Law

Posted in: Business Law