The global financial crisis resulting from the COVID-19 pandemic will undoubtedly raise issues related to the economic viability of countless contracts. Parties will invariably look to enforce force majeure clauses, which have become commonplace in standard form contracts in numerous industries, and may allow parties to either suspend performance or terminate the contract as a result of unforeseen circumstances. The types of unforeseen circumstances covered by force majeure clauses vary significantly depending on state law and the contract at issue, but often include natural disasters, commencement of a war or act of terrorism, political upheaval, significant labor disputes, or serious accidents.

In the bankruptcy context, disputes related to force majeure clauses (or the related common law doctrine of impossibility) will likely arise in two contexts: (1) offensive objections by debtors to claims filed by contract counterparties, which seek to disallow or reduce a claim pursuant to a force majeure clause, or (2) defensive responses by debtors against parties claiming that a contract terminated prepetition as a result of a force majeure event and therefore is not subject to the automatic stay (which generally prevents contract counterparties from exercising remedies against a debtor that would otherwise be available as a result of the Chapter 11 filing or other defaults under the contract). In this article, we discuss some existing guidance from bankruptcy courts addressing force majeure clauses in these contexts, including a number of cases from the last financial crisis.

Do Changes in Economic Circumstances Constitute a ‘Force Majeure’?