Boone County Courts COVID-19 Order
Governor Holcomb's Executive Order 20-06: How Does It Affect Indiana Foreclosures?

Force Mejeure And The COVID-19 Pandemic: Impact On Indiana Notes and Mortgages

  1. What does force majeure mean?

A “force majeure” is “[a]n event or effect that can be neither anticipated nor controlled” and “prevents someone from doing or completing something that he or she had agreed or officially planned to do.” Black’s Law Dictionary (11th ed. 2019). 

  1. What is the typical applicability of force majeure?

The purpose of a force majeure provision is to allocate the risk of loss if performance is impossible or impractical due to a force majeure event.  Black’s Law Dictionary (11th ed. 2019).  A force majeure clause in a contract will usually define various events that excuse or delay certain obligations of a party should these events occur.  In short, force majeure is a defense to a contract breach – it’s an excuse for a failure to perform.

  1. What is an example of a force majeure contract provision?

Here is a example:  “Force Majeure shall mean strikes, lockouts, flood, fire, acts of war, weather, acts of God and other events beyond the control of the Borrower.”  I am not aware of the use of force majeure clauses in promissory notes.  The same goes for mortgages.  Force majeure provisions are more often the subject of commercial leases, sales agreements, and construction contracts in which there are performance qualifiers.  For example, force majeure clauses related to construction obligations in construction loan agreements are common. 

Under Indiana law, the “scope and effect” of a force majeure clause centers on the specific language of the provision.  Specialty Foods of Indiana, Inc. v. City of S. Bend, 997 N.E.2d 23, 27 (Ind. Ct. App. 2013).  Courts are not permitted to “rewrite the contract or interpret it in a manner which the parties never intended.”  Id.  Importantly, “[a] force majeure clause is not intended to buffer a party against the normal risks of a contract. Murdock & Sons Const., Inc. v. Goheen Gen. Const., Inc., 461 F.3d 837, 843 (7th Cir. 2006).  Thus, a party’s nonperformance due to economic hardship is insufficient to trigger a force majeure provision.  § 77:31.  Force Majeure clauses, 30 Williston on Contracts § 77:31 (4th ed.). 

  1. Does the COVID-19 pandemic constitute an “act of God?”

As of 1894, the answer in Indiana would be no.  See Gear v. Gray, 10 Ind. App. 428, 37 N.E. 1059 (1894).  An “act of God” is defined as “[a]n overwhelming, unpredictable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.”  Black’s Law Dictionary (11th ed. 2019).  Although the virus itself is arguably a natural event, the government-imposed restrictions that would actually inhibit a party from completing its contractual obligations arguably do not satisfy the definition of an act of God.  Gear, 37 N.E. at 1061 (holding that the closing of a school due to a diphtheria outbreak was not an act of God).  Certainly this area of the law could evolve in the wake of the current pandemic.  

  1. Does the COVID-19 pandemic constitute an “event beyond the control of the borrower?”

We are aware of no Indiana case law on this, but we believe that the answer would be yes, depending upon the particular performance qualifier in the contract.

  1. Would a governmental shutdown order constitute an event beyond the control of the borrower?

We are aware of no Indiana case law on this but believe that the answer would be yes, again depending upon the particular performance qualifier in the contract.

  1. Is force majeure limited to situations in which a contract contains a provision?  In other words, is it only an express contract right?

Indiana law is clear that the answer is yes.  Force majeure should only arise if the parties’ contract has expressly provided for it.

  1. Can the force majeure defense be “read into” a contract or will the excuse apply as a matter of law?

As Indiana law currently stands, force majeure should not apply in the absence of a contract provision.  This rule would appear to be the prevailing view across the country, although certainly each state has its own set of rules, and we have not performed exhaustive research at this point.  According to our limited research, if a contract does not contain a force majeure clause, then a party cannot use force majeure to excuse a breach of its contractual obligations.  Metals Res. Grp. Ltd., 293 A.D.2d at 418.  (“The parties’ integrated agreement contained no force majeure provision, much less one specifying the occurrence that defendant would now have treated as a force majeure, and, accordingly, there is no basis for a force majeure defense.”).

  1. Can a force majeure defense be read into a promissory note?  

No.  See 7 and 8 above.

  1. Can a force majeure defense be read into a mortgage?

It shouldn’t.  See 7 and 8 above.  However, mortgages generally are governed by principles of equity, and it is not inconceivable that a judge might consider applying force majeure to certain performance-related covenants in a mortgage in the wake of the COVID-19 pandemic.  For example, if the mortgage requires real estate taxes to be current, but the county treasurer’s office is unable to accept payments, then the policy behind force majeure might excuse such a breach.  A pure loan payment default is another matter, however.

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I'd like to thank my colleague David Patton for the legal research that formed the basis of this post. 

Please remember that we represent parties in disputes arising out of loans.  Please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com to discuss an engagement.  Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

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