Using Force Majeure in a Contract
A Comprehensive Guide to Maximizing Contract Flexibility
Last Updated: December 06, 2024
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Key Takeaways:
- Force majeure clauses serve as a shield against unforeseen events and are especially vital in industries vulnerable to disruptions.
- These clauses shape parties’ obligations in a contract, either by suspending performance or extending deadlines, and require proactive measures to mitigate risks.
- Alongside force majeure clauses, tailoring your contract to suit your line of work provides flexibility and effective risk mitigation.
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From unforeseen natural disasters to societal shifts beyond your control, many things can render the completion of a contract practically impossible.
Now, imagine a shield against the unexpected that provides a defense against lawsuits for breach of contract.
That’s the power of a force majeure clause.
Interested in learning more? We’ll explain all you need to know about force majeure clauses and how they operate in contracts.
What is "force majeure"?
The concept of “force majeure” comes from French law. It refers to a superior or irresistible force that intervenes and prevents someone from performing their contractual obligations.
At common law, the contractual doctrine of “frustration of purpose” is similar but generally narrower in scope.
A party to a contract can only rely on frustration to relieve them of their contractual obligations if the performance of the contract has become impossible or illegal due to an “act of God”.
If performing the contract has merely become more onerous or expensive for one of the parties due to the intervening event, the other party can still hold the first party to their obligations. That is why many contracts include a force majeure clause which sets out specific events and situations, the occurrence of which will suspend the obligations of the parties for as long as the event prevents that performance.
In simple terms, a force majeure clause is like a get-out-of-jail-free card for events that make it impossible to fulfill your promises in the contract. A typical example is a sudden natural disaster or an armed conflict.
Even if people can predict the event — as might be the case with a civil war — if it’s beyond the reasonable control of the parties to fulfill contractual obligations, it qualifies as a force majeure event.
With that said, the party claiming force majeure must make all reasonable efforts to lessen the event’s effect on their ability to deliver on the contract. If the contract cannot be completed despite their efforts or precautions, they can rely on the force majeure clause.
Think of including a force majeure clause as a form of insurance.
If an extreme event prevents one of the parties in a contract from fulfilling their obligations, the other party cannot hold them liable. In this case, the parties may agree to suspend contract obligations temporarily or excuse them completely.
Most importantly, the parties won’t face the legal repercussions that typically follow after a breach of contract.
What are some examples of a force majeure clause in a contract?
The force majeure clause is a helpful defense when there’s conflict in a partnership, especially if some partners claim that one partner isn’t meeting obligations.
If a partner cannot fulfill their duties because of an extenuating situation, they may point to the force majeure clause to avoid a legal battle.
Some of LawDepot’s contract templates include a force majeure clause to protect collaborative business relationships. We include this clause in templates for:
For example, the force majeure clause in our Joint Venture Agreement reads as follows:
“A member will be free of liability to the venture where the member is prevented from executing their obligations under this agreement in whole or in part due to force majeure where the member has communicated the circumstance of that event to any and all other members and taken any and all appropriate action to mitigate that event. Force majeure will include, but not be limited to, earthquake, typhoon, flood, fire, and war or any other unforeseen and uncontrollable event.”
In other words, if an extreme event occurs, the affected party must do everything in their power to ease the negative effects of the event on their contractual obligations. The member must also communicate the situation to all other members in the agreement.
If the member takes these steps and proves the event was a force majeure, they may be free of liability for as long as the event prevents them from upholding their end of the agreement.
Service Agreements for weddings (e.g., catering, music performances, or photography contracts) would also greatly benefit from a force majeure clause. After all, weddings typically involve many moving parts, many of which are subject to external factors like adverse weather, sudden illnesses, or transportation issues.
Let’s say there is a flood and the outdoor venue is underwater on the morning of the wedding. The unhappy couple won’t be able to sue the venue for failing to perform its obligations under the contract (i.e. providing a venue) if there is a force majeure clause suspending contractual obligations in these circumstances.
That’s why it makes sense for these types of service agreements to include a force majeure clause. It addresses the unique challenges and risks associated with providing services for an emotionally charged event like a wedding.
How does a force majeure impact contract performance?
A force majeure clause plays a significant role in shaping the parties' obligations under a contract, especially during unforeseen and uncontrollable events. Understanding how this term impacts contract performance is essential for effectively managing risks and ensuring smooth business operations.
1. Suspends or extends performance
Depending on the language of the force majeure clause, it may suspend the performance of contractual obligations entirely during the force majeure event, or it may merely extend deadlines for performance. In some cases, the clause may provide flexibility for parties to renegotiate terms or adjust deliverables in response to the event's impact.
2. Mitigates risks
This type of clause requires proactive measures and strategic planning. One effective approach is to secure appropriate insurance coverage that specifically addresses force majeure events, providing financial protection against losses incurred due to disruptions in contract performance.
3. Encourages contingency planning
Using a force majeure clause involves identifying potential risks and developing alternative strategies to minimize their effects on contract performance. For example, parties may establish backup suppliers or service providers, implement redundant systems or resources, or outline contingency protocols for responding to emergencies.
4. Encourages a collaborative approach
Effective management of force majeure risks often requires a collaborative approach between the parties involved. This may involve open communication, regular updates on potential risks or disruptions, and mutual cooperation in implementing contingency plans to minimize the impact on contract performance.
Is a force majeure clause necessary?
Depending on your field of work, including a force majeure clause may or may not be necessary. While an unforeseeable event may make your job difficult, it may not make it impossible. For instance, consultants may not need this clause because technology helps them deliver services regardless of events that restrict physical meetings.
However, if you work in construction, shipping services, or live event performances, consider adding a force majeure clause to your contracts. Natural disasters such as floods, fires, or extreme cold or heat can easily impact workers in these industries. A force majeure clause is important because it protects parties from liability when something makes upholding the terms of a contract impossible.
Keep in mind that a party must prove the impossibility of fulfilling their contract. It is not sufficient that performance has become inconvenient. This burden of proof may make it difficult to invoke the force majeure clause. Talk with a lawyer before using this clause as a defense if you think you’re unable to uphold a contract.
What happens without a force majeure clause?
Without a force majeure clause, the parties in a contract must resolve their conflict through negotiation or legal action.
For example, if an earthquake destroys a large part of a construction project, the parties might agree that the event was out of the construction crew’s control. They might decide to amend their contract to change the project’s expected date of completion. If the parties can’t agree on how to resolve the problem, they will likely follow the procedures for dispute resolution outlined in their contract (e.g., mediation or arbitration).
You might need to cancel a contract when you try everything in your power to overcome an obstacle but still cannot uphold the contract. Some contracts outline the repercussions of ending a contract early. For instance, some freelancers require clients to pay a cancelation fee if the client cancels early. Alternatively, the freelancer may reimburse clients with their retainer fee if the freelancer has to cancel.
In either case, refer to your contract to see how to handle a contract breach. If the contract doesn’t have terms to address the situation appropriately, one party may put forward a legal claim to enforce the contract in court.
The defending party will likely need to rely on the contractual doctrine of “frustration of purpose ,” as mentioned earlier. In this case, the defendant may argue that the contract is voidable because it is impossible to perform due to forces outside their control.
Are there other methods of addressing unforeseen events in a contract?
When evaluating the necessity of a contract clause, the first step is to conduct a comprehensive risk assessment by:
- Identifying potential threats and vulnerabilities specific to your industry
- Assessing their likelihood and potential impacts
- Determining the most suitable contractual strategies for mitigating those risks.
While a force majeure clause provides protection in some cases, there are alternative contractual mechanisms worth considering.
Hardship clauses
Hardship clauses address situations where fulfilling contractual obligations becomes excessively burdensome or economically impractical due to unforeseen circumstances. Unlike force majeure clauses, which typically focus on events that make performance impossible, hardship clauses provide flexibility in situations where performance remains possible but significantly more challenging.
Tailored provisions
Another approach is to include specific provisions tailored to the particular risks facing the parties involved. For example, if you work in a field susceptible to specific types of disruptions, such as construction, shipping services, or live event performances, consider addressing these risks directly in the contract. This could involve specifying alternative performance requirements, contingency plans, or dispute resolution mechanisms tailored to mitigate the impact of foreseeable risks.
Legal consultations
Finally, before finalizing your contract and deciding on the inclusion of specific contractual mechanisms, it’s best practice to consult with a legal expert who specializes in contract law in your industry. They can provide valuable insights into the risks associated with your line of work and can recommend appropriate provisions to address them effectively.
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