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Thoughts Concerning Force Majeure Clauses
Many San Diego and California business contracts contain what are called “force majeure” clauses. These generally absolve or excuse performance if there is some event that occurs outside of the party’s control like war or an “act of god.” A good San Diego corporate attorney can help review your business contracts and can provide advice and counsel. Here are some thoughts on force majeure clauses.
California Business Contracts: What is a Force Majeure Clause?
As noted, a force majeure clause is intended to excuse performance by one or both parties to a contract if some event happens that prevents or delays performance. In many respects, force majeure clauses are similar to the doctrine of impossibility that we discuss here. Impossibility is one of many defenses if a business is sued for breach of contract and a force majeure clause attempts to cover a similar type of problem.
An example of a force majeure clause would be this:
“Force Majeure. In no event shall the VENDOR be responsible or liable for any failure or delay in the performance of its obligations hereunder caused by forces beyond its control, including, without limitation, acts of God, acts of war/terrorism, strikes, failure of carrier or utilities, equipment or transmission failures, or any other cause that is beyond its control.”
California Business Contracts: Issues to be Considered
The concept of a force majeure provision is simple. However, in practice, there are many issues to be considered and potentially negotiated. Here are a few of those issues.
Specifying Force Majeure Events and Specifying What is Not
Often, force majeure clauses are inserted without too much thought – a boiler plate that is often glossed over. However, parties should pay close attention to the clauses and, in particular, what is listed and specified as force majeure events. After all, a flat tire on a delivery truck could be considered a “force beyond a party’s control.” Depending on the contract and the business relationship, if reasonable, the parties should consider specifying what is NOT to be considered a force majeure event.
At the other extreme, the list of events of what IS a force majeure event could be pages long. In the sample clause above, there are seven listed events. However, many other events could be listed such as:
- Work stoppages
- Accidents
- Civil or military disturbances
- Nuclear catastrophes
- Natural disasters
- Loss of computer services
- And more
Making the list too long is also a problem. The best practice is to tailor the list of events to the nature of the contract and the relationship between the parties. Website hosting is a different business than providing fresh produce to a grocery store. A force majeure clause for the former might emphasize technical issues like loss of utility services whereas the clause for the latter might emphasize natural disasters like floods and fires. Obviously, however long the list, it is important to have the catch-all language at the end of the clause.
“Beyond Control” or “Beyond Reasonable Control”?
It is also important to consider whether the force majeure clause should apply to a force beyond the control of a party or beyond the reasonable control of a party.
Should Efforts to Cure be Required?
Along the same lines, depending on the contract and the relationship, the parties may want to require “commercially reasonable” efforts to cure or correct the force majeure event before a party’s obligations can be suspended or excused.
Resuming Contractual Obligations?
Again, depending on the contract and the relationship, the parties should decide if/when the contractual obligation should resume after the force majeure event has ended. A sentence like this can be inserted: “Performance under this Agreement shall resume as soon as practicable under the circumstances when the force majeure event has abated.” The parties should also consider whether a time limit should be imposed. Example: “In no event shall a party’s performance be suspended longer than 180 days because of a force majeure.”
A Notice Requirement is Recommended
Finally, it is probably the best practice to have a notice requirement such as: “In the event of an occurrence of a force majeure, the VENDOR shall give notice as soon as reasonably practicable to the COMPANY stating the date, extent, and cause thereof.” Obviously, some force majeure events like a natural disaster or the outbreak of war will likely be a matter of public notice. But other events may be less newsworthy.
California Business Contracts: Contact San Diego Corporate Law Today
If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal.
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