Hop Law

Coronavirus and Your Brewery: Does It Meet Force Majeure Conditions?

Many lending agreements with banks and the Small Business Administration contain “force majeure” clauses to remove liability when meeting obligations become impractical in light of certain catastrophes, disaster, or emergencies. Alcoholic beverage producers are likely going to be significantly impacted as a result of the pandemic, so you should review your loan documents to see if there is a force majeure contract provision that can provide you with some relief.

If loan payment obligations are impracticable in light of the coronavirus pandemic or even if you fear payment may become impracticable, you should review your loan documents’ force majeure clauses – they usually appear towards the end of the lending agreement. If, after reviewing, you have concerns or questions about your force majeure clause conditions, you should contact an alcohol beverage attorney soon because as the disease spreads, it is going to have a greater and greater impact on the economy in general, and probably your business, as well.

President Donald Trump relied on a force majeure clause in a dispute with lender Deutsche Bank. The complaint used the force majeure clause and applied it to the 2008 recession:

““Because of the Force Majeure Event arising from the unprecedented dysfunctionality and seizure of the credit markets many of the Inappropriate Lenders have themselves become completely dysfunctional and are unable to act. Deutsche Bank has thereby put Plaintiffs and the other more experienced lenders in a situation which makes it virtually impossible to obtain even the most routine amendments, adjustments and consents (a terrible and harmful lending practice). This action by Deutsche Bank is a breach of Deutsche Bank’s obligations to Borrower and the other lenders. Deutsche Bank has created a disjointed and dysfunctional group of lenders and Deutsche Bank’s actions will cause tremendous damage to Plaintiffs, the Trump brand, the Project, and those lenders who are trying to act reasonably and in good faith.”

Norris F. (2008, December 5). Inappropriate Lenders. The New York Times. Retrieved from https://www.nytimes.com

This goes to show how useful force majeure clauses can be.

Because pandemics are rare, there is not a lot of case law regarding force majeure clauses and their application in such situations. Many are asking, “How do you use force majeure in a contract?” The impact coronavirus has on breweries remains to be seen. Therefore, it is important to contact an alcohol beverage producer lawyer as soon as possible. While he or she may not be able to give you an answer, they can still review the language in the clause to determine the likelihood of its application in the face of the coronavirus pandemic.

It may also be worthwhile to proactively contact your lender to see if your lender has plans for dealing with the global pandemic. If commerce slows down generally, it is going to impact your business in some fashion (along with all other businesses). Your lender may have plans to help borrowers weather the proverbial storm.