A Force Majeure Clause: Everything You Need to Know
It is a section of a contract that relieves a person or company of their contractual obligations under circumstances deemed beyond their control.3 min read
2. Specific Disasters That Can Be Covered by Force Majeure
Updated October 29, 2020:
A force majeure clause is a section of a contract that relieves a person or company of their contractual obligations under circumstances deemed beyond their control. These conditions are generally called “acts of God." Force majeure clauses can come into practice in the event of an earthquake or flood, for example. These clauses are also applicable if war breaks out or if a terrorist attack occurs.
These clauses are intended to relieve a party of its contractual obligations in cases where the failure to perform could not have been avoided by taking better care or due diligence. It is important to note that a force majeure clause does not cover failure to meet contractual obligations due to negligence or lack of available funds.
When translated literally from French, force majeure means “superior force.” As the name implies, it refers to "acts of God" like tornadoes and hurricanes, for which no one can be held responsible.
Example of Force Majeure in Action
The force majeure clause is specifically intended to excuse a party from liability as a result of outside events that cannot be controlled. Take the example of somebody who signed the documents to buy a house, which burned down before they could take ownership of it. If the fire was caused by a lightning strike, neither the seller nor the buyer would be held liable. In this case, the seller would not be able to hand over the property, and the buyer would not be responsible for paying the purchase price.
By general definition, a force majeure clause is a provision in a contract that allocates the risk in cases where performance becomes impracticable or impossible. This applies in cases where the event is something that neither party could have anticipated or prevented. For force majeure to be applicable, the event must be outside the control of both parties in the contract, unavoidable, and unforeseeable.
The force majeure concept has its origins in French civil law. It is accepted in a number of jurisdictions where the legal system stems from the Napoleonic Code. Force majeure clauses are accepted in common law systems, such as the one we have in the United States, but events that could trigger a force majeure clause need to be carefully stipulated.
Specific Disasters That Can Be Covered by Force Majeure
When you are negotiating the terms of a force majeure clause, you need to make sure that it applies to all parties, and make sure to include specific examples of events that could cause performance to be excused — such as tornadoes, earthquakes, fire, etc.
These events fall under three basic categories:
- Natural disasters, such as hurricanes, earthquakes, tornadoes, floods, and fires.
- Human events, like riots, wars, and other serious upheavals.
- Performance failures outside the contracting party's control, such as disruptions to telephone services, labor-related disputes, unavailability of raw materials, and restrictions imposed by the government.
Generally speaking, the force majeure clause does not cover cases of software glitches, computer failure, conflicts with distributors, credit-related problems, or internal labor disputes.
The language in which a force majeure clause is written should be specific to the type of business the contract pertains to. For example, an internet company would need to put in provisions for internet service provider glitches and electronic malfunctions. Every specific condition that is included in the contract provides you with greater protection.
In order to apply a force majeure clause, the situation that has arisen must be outside of both parties' control. It also needs to be unavoidable and unforeseeable, conditions that can be hard to prove. It must be noted that the majority of force majeure defenses fail when presented to an international tribunal.
Contracts that explain specifically what will be covered by a force majeure clause are always more likely to hold up in court. The application of this concept can be extremely limited, even in legal systems based on civil law.
An improperly drafted and unspecific force majeure clause can actually do more harm than good. It can leave both parties with little legal protection and in a more dangerous predicament than they would have been without such a clause. If you decide to include a force majeure clause in a contract, it needs to be written properly.
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