What is a Force Majeure Clause in a Contract?

What is a Force Majeure Clause in a Contract?

A force majeure clause is a provision typically added to contracts that help to shield the parties from liability in the event of a catastrophe or a natural event that prevents the parties from fulfilling their obligations under the contract. Examples of a force majeure include unforeseeable and unavoidable events such as wars, pandemics, etc. It can be also understood as “acts of God” – events that no party can be held accountable for.
Typically, when the court accepts that an event is covered by a force majeure clause, a party to the contract may be excused from being obliged to perform, may be given a time extension to perform or given an option to exit the contract altogether.

What is Included in a Force Majeure Clause?

The requirements for a force majeure clause have differed by jurisdiction.
Some jurisdictions strictly demand that a force majeure clause explicitly includes the descriptions of those events that are covered under the clause, while other jurisdictions might accept a more general standard for the clause. Therefore, it is advisable that force majeure clauses be narrowly written to include local threats that are likely to occur in the jurisdiction where the contract is written. Such explicit descriptions of events hold up better in courts than more general ones.

What Happens if There is no Force Majeure Clause?

One can say that in common law, including a force majeure clause in a contract is entirely voluntary and the decision left to the parties drafting the contract. As a default, a party is liable for its own failure to perform, unless there is a clause in the contract that covers the excusal of non-performance in certain circumstances. Force majeure is such a clause.
Typically, if there is no force majeure clause in a contract, one is left with the option of a “frustration of purpose” clause. This clause is very similar to a force majeure clause, as the party arguing it has to show that an unforeseeable event outside of the control of the parties has “frustrated” the performance of the contract. However, different states require different standards to meet in order to recognize that a contract has been “frustrated” with some states having a higher burden of proof. For example, a mere showing that a party has encountered some difficulty in its performance of a contract may not be enough to show “frustration”.
Additionally, for contracts that involve the sale of goods and that are governed by the Uniform Commercial Code – Section 2-615 of the Code provides a possibility to argue excusal of the performance. The UCC uses the “impracticability” rather than the “impossibility” standard, which may provide an easier way out of the performance obligation for some parties.

Finally, if your contract involves an international sale of goods, the United Nations Convention on Contracts for the International Sale of Goods might apply.

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*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

Categories: Business Law | Transactional

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