A California retail developer filed a lawsuit declaring COVID-19 and government shutdowns force majeure events entitling it to delay closing on $4.2 million property purchase from ExxonMobil. Pacific Collective, LLC v. Exxonmobil Oil Corp., Complaint, No. 20STCV13294 (Cal. Sup. Ct. Filed Apr. 3, 2020). Force majeure translates to “superior force” in French and it is a term in a contract that frees a party from a contract obligation when an “extraordinary event” or “act of God” prevents it from performing.
The purchase agreement has a force majeure clause, but it does not include pandemics, epidemics, or contagions. Nonetheless, Pacific Collective argues that to close on the purchase would require it to commit acts that would be crimes under stay-at-home orders. Pacific Collective says that the orders prevent it from using construction workers, architects, inspectors, and other persons necessary to redevelop the property; and it cannot develop the property in the manner that was a core assumption of the agreement
Exxon claims that Pacific Collective is delaying because it lost its tenant and financing, events outside the force majeure clause. Exxon also says that construction is designated as an “essential” business and may operate under the stay at-home orders.
The purchase contract is dated February 7, 2020 and Pacific Collective invoked force majeure on March 30, 2020, one day before the closing date. Three days later, Exxon said the sale was cancelled and Exxon would keep the down payment of $120,000. Pacific Collective seeks $7.9 million in damages and an injunction prohibiting Exxon from selling the property to someone else.
This could be a leading case on declaration of force majeure in COVID-19 cases. The fact that an injunction is sought may result in a quick decision. The case will involve both the legal issue of when force majeure applies plus a resolution of the factual dispute on whether the delay was actually caused by COVID-19 events.
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