Contract Tip: What is Force Majeure?
Contract law is rife with terms of art which can be very confusing to the average business owner. In our previous articles, we have tried to shed some light on terms like Consideration, Indemnity, and Merger. This article will address a term whose definition may not seem intuitive at all, Force Majeure. Hint: If the above picture represents your company’s truck, you’d be glad you had such a clause in your contracts.
What is it?
Force majeure is French for superior force. In contract law, it is a concept that exempts the contracting parties from fulfilling their contractual obligations due to unforeseeable circumstances beyond their control. Force majeure will often apply to what are commonly known as “acts of God” but it can also apply to unforeseeable acts of man, such as theft, vandalism, acts of war or terrorism.
Consider the following hypothetical. You run a company where you rent tents and canopies to clients. You enter a contact with a client where you are required to supply a tent on a certain date. Unfortunately, a fire destroys your delivery trucks before you are able to deliver the tent. You call the client, apologize profusely, and let them know you will refund them for the rental. Despite your apology, the client is livid. They tell you they needed that tent on that specific day and no one will rent to them on such short notice. Without it, their event will be rained out and they stand to lose thousands of dollars. They threaten to sue you for the damages they will incur from the rain.
You may think that since the fire wasn’t your fault, you’re protected. There are some doctrines like impossibility that protect you when you cannot meet your obligations, but that doesn’t really apply here. If your warehouse had burned down, destroying all your tents, you would have had a case for impossibility. You can’t deliver a product that doesn’t exist. However, in the above hypothetical, the tents weren’t destroyed. You could theoretically have found another means of delivery, even though the cost to you may have been significantly higher.
Since you aren’t protected by an impossibility defense, your contract is likely going to determine whether you can be excused from your obligation. If your contract included a well-written force majeure clause, you would be protected from liability. If not, you could end up on the losing end of the fight with your client.
Force Majeure Can Excuse Some (Reasonably Unforeseeable) Events Outside Your Control
A force majeure clause should always be tailored to your specific circumstances and contingencies that are possible with your business. It could look something like the following:
A Party will be free of liability where the Party is prevented from executing its obligations under this Agreement in whole or in part due to force majeure, such as earthquake, typhoon, flood, fire, and war or any other unforeseen and uncontrollable event, whether similar or dissimilar to the preceding, where the Party has communicated the circumstance of the event to the other Party and where the Party has taken any and all reasonable action to satisfy his duties and obligations and to mitigate the effects of the event.
Keep in mind that a force majeure clause only protects you in the event of reasonably unforeseeable events. If you knew it was coming, you can’t lean on force majeure to excuse your breach. This can become a little tricky with advancements in technology and the ability to predict “acts of God.” For example, if you are prevented from fulfilling your obligations due to a hurricane, are you protected by your force majeure clause? The answer depends on the circumstances. You still have a duty to mitigate the effects of the event, so if you had notice that the hurricane was coming (nowadays, you almost certainly would) and you had time to evacuate or take other measures that would have allowed you to meet your obligation, force majeure wouldn’t really apply. Force majeure will also only apply to circumstances outside your control. Meaning if you started the fire in the earlier hypothetical (in addition to all the trouble you’ll be facing for… you know… arson) you will not be excused from your contractual obligations.
In conclusion, antiquated terms like force majeure may seem overly complicated and unnecessary, but they can have a significant impact on you and your business. While a force majeure clause is not an all-encompassing relief of duty, a well-crafted force majeure clause can go a long way toward protecting you from circumstances outside your control.