The force majeure clause in a contract excuses a party from not performing its contractual obligations due to unforeseen events beyond its control. These events include natural disasters such as floods, earthquakes and other “acts of God,” as well as uncontrollable events such as war or terrorist attack. Force majeure clauses are meant to excuse a party provided the failure to perform could not be avoided by the exercise of due diligence and care. However, it does not cover failures resulting from a party’s financial condition or negligence.
Force majeure literally means “greater force.” When used in a contract, the force majeure clause is one of several boilerplate clauses, which are clauses normally written using standard, universal language. Other common boilerplate clauses include arbitration clauses and entire agreement clauses.
The intention of the force majeure clause is to excuse liability of a party because of uncontrollable outside events. For example, you signed a purchase agreement for a house and before you gained ownership of it the house burned down due to a fire caused by lightning. Neither the buyer nor the seller would be held liable under the terms of the contract: the seller for not providing the property as stipulated in the contract and the buyer for not paying the balance of the purchase price.
When negotiating force majeure clauses, make sure the clause applies equally to all parties. Be sure to include specific examples of events that will excuse performance under the clause. The following are three basic categories of these kinds of events:
- Natural disasters, such as earthquakes, hurricanes, floods, tornados and fires
- Human events, such as wars, riots or other major upheavals
- Performance failures outside the control of the contracting party, such as disruptions in telephone service attributable to the telephone company, labor disputes other than those of the contractual parties, government restrictions (denial or cancellation of a necessary license), or supplier problems (product unavailable)
Generally, the events that the force majeure clause does not cover include:
- Computer failures
- Software glitches
- Distributor troubles
- Internal labor disputes
- Credit problems
The language of a force majeure clause should pertain to the area of business that the contract covers. Internet companies should put in provisions for electronic failures and internet service provider disruptions. The more specific you are as to the events covered under the clause, the better the contract will protect you.
The basics of the force majeure clause have been incorporated in the Uniform Commercial Code (UCC Sec 2-615) and the Restatement of Contracts 2D (Sec 261). Under Section 2-615, “Excuse by Failure of Presupposed Conditions,” a seller who is unable to deliver goods because of a contingency that makes the terms of the contract impossible to fulfill must notify the buyer of the delay or nondelivery. 2D Section 261, “Excused Nonperformance,” is broken down into four areas:
- Objective impossibility
- Force majeure
- Supervening illegality
- Commercial impracticability
Here’s a sample template of a force majeure contract clause:
Neither party shall be liable in damages or have the right to terminate this agreement for any delay or default in performing hereunder if such delay or default is caused by conditions beyond its control including but not limited to acts of God, government restrictions (including the denial or cancellation of any export of other necessary license), wars, insurrections and/or any other cause beyond the reasonable control of the party whose performance is affected (including mechanical, electronic, or communications failure).