Estate and Succession Planning
Dean Mead’s Estate and Succession Planning Department is one of the largest and most respected groups of estate planning attorneys in Florida. We are frequently…
About a half an hour after Orange County, Florida issued Emergency Executive Order No. 2020-04, shuttering all non-essential businesses in Central Florida, my colleague Gabe sent me a text, “My commercial tenant just served me with a force majeure notice! Can he do that?” Apparently, Gabe’s tenant is attempting to be excused from the payment of rent because the Order is requiring him to close his office. The quick answer to Gabe’s question is it depends on the language of his lease and potentially a very fact-intensive analysis concerning the doctrines of impossibility of performance, frustration of purpose, and commercial impracticability. But, before we go there, let’s take a look at the last time a global pandemic brought up questions of force majeure in this country.
The Great Influenza of 1918
A century ago, the Great Influenza a/k/a the “Spanish Flu,” infected 500 million people worldwide becoming the deadliest flu pandemic in history. Observing the developing COVID-19 pandemic, it seems not much has changed in the last hundred years, other than obvious advances in medical care. In 1918, parades and other events were cancelled, medical supplies were in short supply, quarantines were imposed and people stockpiled food.[1] For example, the San Diego Board of Health closed businesses, outlawed public gatherings and enforced a strict quarantine to combat the flu. About one percent of San Diego’s population had contracted the flu and 20 people had died. The city shut down all schools, theaters, movie houses, gymnasiums, pool halls, libraries, and churches and outlawed all public gatherings for five weeks. Within a few weeks, the spread of the flu was ebbing and most restrictions were lifted. Then came the “second wave.” 100 new cases! Eight more deaths in two days! Authorities pushed to reinstate the quarantine. Business owners pushed back. After a heated debate, on December 5, 1918, the city council of San Diego adopted quarantine Ordinance No. 7587, which forced all factories and places of business to close for four days. Only stores selling “the necessities of life” were allowed to stay open, e.g., groceries and drugs.[2] The police warned business owners that if they stayed open they would be arrested. People who did not wear masks were fined five dollars and their names were printed in the newspaper. The San Diego Union published an editorial on December 7, 1918, opining as to how San Diegans should deal with the quarantine:
The doctors are still theorizing upon the nature of the sickness, its cause, origin and means of distribution; but they are agreed that in the universal ignorance the safest course is prevention of contact as far is possible. Good health is better than riches. Our pecuniary losses are of little moment in comparison with the loss of the vitality which enables us to perform our work; it is possible that the quarantine is not the remedy, but it is the obvious resort, and the confidence inspired by the fact that our health authorities are employing all the knowledge and resources at their command, will have a material effect in sustaining the community in its hour of trial.[3]
The board of health lifted the second San Diego quarantine on December 9th and ordered citizens to wear gauze masks until Christmas, but the business community felt the effects of closures. Factories had been shuttered and projects were delayed.
The strain on small business and the type of legal dispute which can arise from such an event is exemplified by Citrus Soap Co. v. Peet Bros. Mfg. Co., 50 Cal. App. 246, 194 P. 715 (1920). In November 1918, Citrus Soap Company sold and agreed to deliver 12 large drums of soap to Peet Brothers Manufacturing Company. The soap was to be manufactured in San Diego and the parties’ contract required the goods to be delivered to Berkeley, California prior to December 31, 1918. The contract contained a “contingency of delay in performance” provision as follows:
This contract is made subject to suspension in case of fire, flood, explosion, strike or unavoidable accident to the machinery or the works of the producers or receivers of this material, or from any interference in plant by reason of which either buyers or sellers are prevented from producing, delivering or receiving the goods and in such event the delivery thus suspended is to be made after such disabilities have been removed; otherwise to be fulfilled in good faith.
Citrus Soap delivered three drums to Peet Brothers before December 31st, which were accepted. Four more drums were delivered on December 31st. Three drums arrived January 2nd and two drums arrived January 7th. Peet Brothers refused acceptance of these nine drums. The agreed price for the nine drums was $2,970.00, the equivalent of $52,000 today. The market value of the rejected soap at the time of Peet Brothers’ refusal of acceptance was $1,089.00. Citrus Soap sued Peet Brothers for breach of contract for the difference, $1,881.00 in damages.
Peet Brothers defended itself by asserting that Citrus Soap breached the contract by not delivering the goods before December 31, 1918, as required by the contract. As a result, Peet Brothers claimed it was not obligated to accept the late soap. Nonetheless, the trial court found that, due to the Spanish influenza epidemic and the related quarantine which interrupted Citrus Soap’s manufacture of soap for nine days, Citrus Soap was unable to produce the soap and make delivery of the nine drums prior to December 31st. The trial court concluded that all of the delay in delivery to Berkeley, California was caused by interference related to the enforcement of the quarantine. Therefore, under the “contingency of delay in performance” provision, Citrus Soap was excused from performing until the interference subsided.
The Court of Appeals agreed with the trial court, holding that under the terms of the contract Citrus Soap was entitled to perform the contract within a reasonable time after December 31st. Since this was done, Peet Brothers was obligated to pay the contract price for the soap and was liable for Citrus Soap’s damages.
Citrus Soap’s “contingency of delay in performance” clause is essentially a force majeure provision. Force majeure clauses are used to allocate risk when performance of a contract becomes impossible or impracticable. The analysis today generally would not be much different than in Citrus Soap, although it would probably be more involved. In PART TWO, we discuss the law of force majeure today applied to Gabe’s tenant and the COVID-19 crisis.
[1] Forbes, Think Social Distancing for Coronavirus is Overkill? Here’s a Cautionary Tale From 1918, Kiona N. Smith, March 16, 2020; The San Diego Union-Tribune, The 1918 flu pandemic in San Diego: 366 deaths, sheep dip and mandatory masks, John Wilkens, March 15, 2020.
[2] San Diego Reader, Unforgettable: Pandemic 1918, Jeff Smith, September 23, 2009.
[3] The San Diego Union-Tribune, From the Archives: Advice from 1918 on surviving a quarantine, December 7, 1918 flu editorial, Merrie Monteagudo, March 24, 2020.
