U.S. Government Shutdown: Will Performance of Private Contracts Be Excused?

by Pillsbury Winthrop Shaw Pittman LLP

With Congress unable to reach an agreement on a continuing resolution, the federal government shut down all “non-essential” services on October 1, 2013. The shutdown will remain in effect until Congress passes appropriations legislation for fiscal year 2014. As the shutdown continues, performance under contracts between private parties may become difficult, if not completely unachievable. In rare cases, parties have options to excuse such performance under various contract excuse doctrines. This alert provides guidance on what private contracting parties affected by the shutdown should consider.1

As the government shutdown continues, its impact is spilling over into the private sector. The energy, agriculture, steel, industrial, restaurant, retail, travel and tourism, and hospitality industries have been or are expected to be getting hit hard, potentially throwing into jeopardy obligations under contracts between private parties. The breadth of the impact will only increase dramatically if the government defaults on its debts. Those private parties that have been impacted by the shutdown (or, potentially, a default) ought to consider the various excuse doctrines.2

Availability of Excuse Doctrines
Excuse doctrines—which include mutual mistake, impossibility or impracticability of performance, frustration of purpose, and force majeure—permit a party to avoid its contractual obligations when a basic assumption of the parties in entering into the contract changes substantially. None of the excuse doctrines, however, permit a party to alter the agreed-to risk allocation under a contract. For an event to excuse performance, it must be one that changes the risk allocation that underlay the agreement; otherwise, courts will be reluctant to forgive non-performance. For example, in cases where parties agree to a fixed-dollar contract price, a foreign seller assumes the risk of currency devaluation. If a currency is devalued, the seller cannot seek to excuse performance—this is true even where the contract becomes hugely unprofitable.3

The Force Majeure Clause
Force majeure is one of the most likely excuse doctrines that parties will turn to in the face of the shutdown because force majeure events may include acts of government. A force majeure clause is a common contractual provision that excuses a party from performing its contractual obligations due to unforeseen events beyond its control. Force majeure events typically include natural disasters and other “Acts of God,” war, terrorist attacks, riots, strikes, and acts of government. A party could only be excused where it did not cause the event in question and could not have avoided the event.

A party seeking to avoid obligations will likely face challenges. The history of government acts to which force majeure has been applied has been limited and is highly dependent on the specific language in the provision.4 If an event is determined to be foreseeable, then the application of the doctrine will also likely fail. While government shutdowns are extremely rare—the last shutdown occurred in 1996—a party opposing excused performance might argue that evidence of prior shutdowns and the long-standing disagreements between the political parties made the event foreseeable. The inquiry into whether the shutdown was “reasonably foreseeable” will depend on the specifics of the contract, as well as the current political environment.5

Ultimately, the wording of the force majeure clause will make the difference in the outcome of any potential litigation—contracting parties are free to specify which events they consider as “unforeseen” or beyond the reasonable control of the parties. Courts typically interpret these clauses narrowly and will only excuse a party’s nonperformance if the event is specifically identified.6 Performance must have been impossible, rather than just expensive. The lesson going forward: Parties may want to consider including “government shutdown” in future contracts as one of the events in a contracts’ force majeure clause.

Help from the Uniform Commercial Code?
For those contracts that lack a force majeure provision, sellers may still be able to turn to the Uniform Commercial Code. Section 2-615 permits a seller to delay, cancel or only partially perform on a contract where it is commercially impractical to do so.7 Like force majeure events, the party must show that the unforeseen event upon which the excuse is predicated is due to factors beyond the party’s control. Courts will not excuse performance when the governmental act was foreseeable and fundamental to the risk allocation. As discussed above, this too will be challenging—particularly with respect to foreseeability. In one case under the U.C.C., a court concluded that the Arab oil embargo was foreseeable and thus not excused under section 2-615.8 The court noted that the record was “replete with evidence as to the volatility of the Middle East situation, the arbitrary power of host governments to control the foreign oil market, and repeated interruptions and interference with the normal commercial trade in crude oil.”9 Because the parties were aware of this possibility, they should have protected themselves in the contract.

Tough Road Ahead
While there has not yet been any litigation surrounding the current federal government shutdown, it is clear that parties will find it difficult to successfully assert one or more excuse doctrines as a means to avoid contractual obligations. Ultimately, the outcome of any litigation surrounding the consequences of the shutdown will be determined on a contract-specific basis. One needs to carefully analyze the specific contract involved to understand the risk allocation of the agreement. Only then can you begin to identify whether the parties’ situation is more like the rare case where excuse doctrines have been found to apply—or whether any non-performance would constitute a plain breach.

Download: U.S. Government Shutdown: Will Performance of Private Contracts Be Excused?

  1. This alert does not address government contracts, which are governed by government procurement regulations.  For more information on government contracts, see Pillsbury Client Alert: In the Event of a Government Shutdown: Preparation Pointers for Federal Contractors, dated October 2, 2013. 
  2. David M. Lindley and John E. Davis, Excuse Doctrines, Commercial Contracts: Strategies for Drafting and Negotiating, §§ 9.01-9.06 (Vladimir Rossman, et al. eds., Aspen Publishers 2d ed. 2012) (providing an overview of excuse doctrines generally). 
  3. U.S. case law generally rejects the application of excuse doctrines based on currency fluctuations. Contracting parties are presumed to be aware of the possibility of exchange rate fluctuations and changes in market condition.  
  4. See, e.g., Duane Reade v. Bear Stearns Commercial Mortg., Inc., 2009 N.Y. Slip Op. 4348, at *9, 63 A.D.3d 433, 434 (1st Dept. 2009) (party permitted to invoke contract’s force majeure clause where a binding temporary restraining order issued by the New York Supreme Court qualified as a “governmental prohibition” under the clause).
  5. Even in the wake of the September 11, 2011 terrorist attacks, courts were reluctant to excuse performance based on the economic effects of unexpected events—even when there was no history of an event of this magnitude.  See, e.g., OWBR LLC, 266 F. Supp. 2d at 1224 (“To excuse a party’s performance under a force majeure ad infinitum . . . would render contracts meaningless in the present age, where terrorism could conceivably threaten our nation for the foreseeable future”).  But courts are split as to whether or not the most recent financial collapse was foreseeable.   
  6. See, e.g., Macalloy Corp. v. Mettalurg, Inc., 728 N.Y.S.2d 14, 14–15 (government decision to enforce environmental regulations not within force majeure clause's “plant shutdown” language; plaintiff’s decision to close the plant was voluntary and made for financial reasons caused by the enforcement of the regulations—regulations plaintiff knew about before executing the contract).
  7. Section 2-615 applies in the context of sale of goods, which is governed by Article 2 of the Uniform Commercial Code.
  8. Eastern Air Lines, Inc. v. Gulf Oil Corp., 415 F. Supp. 429, 442 (S.D. Fla. 1975).
  9. Id. at 441 (citation omitted).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pillsbury Winthrop Shaw Pittman LLP | Attorney Advertising

Written by:

Pillsbury Winthrop Shaw Pittman LLP

Pillsbury Winthrop Shaw Pittman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.