Often Present, Rarely Applicable
While most contracts contain various clauses that clearly specify when the obligations of each party cease to be enforceable, there is one particular boilerplate paragraph present in almost every contract that is less than clear. Parties to a contract usually agree that if certain unforeseen events take place, such as “Acts of God”, that literally make performance impossible, it would be unreasonable for one party to enforce a contract against the other. An excuse of performance under these types of provisions typically requires notice from the party that is unable to perform because of whatever circumstances that are outside of their control. Those circumstances that trigger the application of this provision could be a hurricane or an earthquake, or it could be human action, such as armed conflict. If you haven't guessed already, we're talking about the “force majeure” clause.
The force majeure clause is one of those boilerplate paragraphs present in most contracts which is oftentimes glossed over by the parties. Because a “true” force majeure is rather rare, very few parties spend a significant amount of time or effort negotiating the language. Notwithstanding the rarity of its applicability, the language does actually matter (as does every provision of a contract). But, frankly, it is more likely to face a situation where a party claims the force majeure provision excuses their failure to perform than to face a situation where the force majeure provision actually does so. For that reason, it is important to make sure the triggers in the language are appropriately narrow to avoid potential arguments down the road. For example, in most cases, the fact that a party’s email service went down for 6 hours should not trigger a force majeure, while a coordinated and nationwide cyber-terrorist attack that affected all corporate email services might. The specific context is crucial to determine the appropriate triggers of a force majeure clause. For example, if you are entering into a financial trading document, where significant damage can result from failure of one party’s performance within minutes, you may want to include force majeure events when major markets or exchanges are down. Ultimately, however, you will want to ensure that the language in the contract sufficiently covers the underlying risk you may assume under the contract.
Recently, many communities and businesses in the southeastern United States battled through a major storm and are currently in clean-up mode thanks to Hurricane Florence. A major hurricane such as this has the potential to be a legitimate force majeure event under certain contract language, but again, the language matters.
The next time you enter into a contract, take a few minutes to read the force majeure provision. Apply the facts of Hurricane Florence and see if it would trigger the force majeure provision. Is it too broad, leaving wiggle room for a later argument? Do the notice requirements provide the necessary protection? At what point, if any, does the event cease to be a force majeure?
If you have any questions on force majeure or other legal principles that may apply to your contracts, please feel free to contact the lawyers at Fourscore Business Law.
Based in the Research Triangle region of North Carolina, Fourscore Business Law serves entrepreneurs and businesses in Raleigh, Durham, Chapel Hill, Wilmington, Charlotte and throughout the Southeast. We also represent venture capital funds and other investors who invest in companies located in New York, Silicon Valley and everywhere between.The idea of delivering maximum impact in a simple and succinct manner is what we’re calling the Fourscore Principle. And that is what Fourscore Business Law is based on. Our clients operate in a broad range of industries including tech, IoT, consumer products, B2B services and more. Questions? Shoot us an email or give us a call at (919) 307-5356. Your first call is on us.