Hell or High Water Clause: Everything You Need to know
A hell or high water clause in a contract is a provision that states that a purchaser must pay the stipulated payments at the time regardless of any encounter.3 min read
A hell or high water clause in a contract is a provision that states that a purchaser must pay the stipulated payments at the agreed time regardless of any difficulties he may encounter. Some of the difficulties that may be encountered include equipment failure, damage, loss, and even death of the purchaser. The clause is normally intended to reduce the possibility of the purchaser breaching the contract with the excuse that the contract became impossible to fulfill.
Why You May Need a Hell or High Water Clause
The term "hell or high water clause" comes from the expression “come hell or high water,” which means that an action must be done regardless of what happens. The expression seems to have its origins on the late 19th-century Midwest ranches where determined cowboys would drive their herds of cattle through high water and “hell.” Businesses may insist on having a hell or high water clause in their contracts for a number of reasons:
- If the supplier took on a loan to finance his operations, the supplier will need assurance that he will get payments to pay the loan. The payments will enable the supplier to stay afloat despite difficulties like equipment breakdown.
- Equipment lessors may require the equipment lessee to continue making payments even if the equipment breaks down. In this case, the payments may help with repairs or financing.
- In a merger or purchase agreement, a hell or high water clause may be included when one of the parties to the agreement requires the other to take on all the antitrust risk arising from the transaction.
Hell or high water clauses are usually part of construction and equipment leasing industry contracts. Some suppliers of equipment insist on the clause to be able to supply uninterrupted. The clause is also popular with suppliers of equipment like computers and industrial equipment.
What Courts Think of the Hell or High Water Clauses
The phrase “hell or high water” is usually not included in the contract because it has limited meaning legally. Precise wording is used to show that the purchaser will pay all sums unconditionally regardless of difficulties. Because a hell or high water contract clause may have serious ramifications for the parties to a contract, it is wise to involve an experienced lawyer when drafting an agreement that contains the clause.
Hell or high water clauses are protected by the Uniform Commercial Code (UCC). Article 2A of the code, in particular, gives special protection to the clause. Bar a few exceptions, U.S. courts in most states enforce the hell or high water clause in contracts. Courts have historically ruled that the clause is valid in different lawsuits.
When a Contract Cannot Be Enforced Even If It Has a Hell or High Water Clause
- Situations of Fraud: The hell or high water clause cannot be used to compel a purchaser to pay for goods when there is fraud at any stage of the relationship. This was affirmed by a landmark ruling in the 1997 Colonial Pacific v. McNatt case in Georgia.
- The Purchaser Refuses to Accept the Goods: Generally, unless otherwise specified by the contract, the hell or high water clause is not enforceable unless the purchaser accepts the goods supplied. An example is when a supplier of computer printers supplies defective printers to a bank. On inspection, the bank's IT team finds the equipment defective and rejects the consignment and informs the supplier. In such a case, the hell or high water clause cannot be used to force the bank to pay for the equipment.
Other Contract Clauses Similar to the Hell or High Water Clause
There are a number of clauses that can be used in a contract to try to limit the excuses that a party has for breaching the contract. Popular clauses apart from the hell or high water clause include the following:
- Hardship Clause: A hardship clause is similar to a hell or high water clause. It compels one of the parties to a contract to perform his part of the bargain despite hardships.
- Force Majeure Clause: A force majeure clause absolves one or both parties to a contract from performing their part of the contract when natural disasters make it impossible to perform the contract.
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