Editor's Note: This blog originally ran in December of 2019. Given the evolving COVID-19 pandemic and its implications on current projects, Window + Door is refreshing it here. Our continuing coverage of ongoing implications of the coronavirus will include more information on force majeure and other contract considerations.
Companies not only have to worry about their employees and businesses, but also about whether and when they can fill existing orders. This last worry is why a “force majeure” clause is essential to a contract involving the supply of goods.
A force majeure (French for superior force) clause allows parties to alter their obligations in times of crises. The clause relieves the affected party from liability for not fulfilling its contractual obligations when unforeseen circumstances beyond that party’s control happen. Force majeure clauses found in contracts are often boilerplate language not carefully considered by the drafters. However, this language is critical to enforcement.
Events commonly identified in a force majeure clause include riot, war, acts of terrorism; acts of God (which should include hurricane and fire); labor strikes; or interruptions in transportation. Courts are hesitant to enforce the clause where the occurring event is not specifically listed. Most clauses include a catch-all “and any other event beyond the parties’ control,” but this alone may not help, unless the occurring event is analogous to a specifically identified event. To avoid filling half a page with a laundry list of events, take the time to consider and include only the types of events most likely to occur that would affect your ability to perform under the contract.
Many boilerplate force majeure clauses apply when the event makes it “impossible” for a company to fulfill its obligations. However, less-restrictive conditions are permitted and the contract drafter should consider including language invoking the clause when performance is, e.g. “commercially impractical.”
An effective force majeure clause will also clearly state the rights and obligations of the parties when a force majeure event occurs. While the clause should allow for cancellation of the contract, you may want to leave open the possibility of delayed performance.
The clause should also mandate that the party whose performance is affected immediately provide notice to the other party, including specifics on the event, how performance was affected, and whether/when performance is anticipated. Additionally, the force majeure clause should state that the affected party is not responsible for damages associated with the non-performance or delayed performance caused by the force majeure event.
Plan now. A force majeure clause may appear unimportant and receive nothing more than a brief skim, but these events do happen and if you need to invoke it, you will desperately want it to address your needs.