Force Majeure Clause In A Contract- What Does it Mean?

Understanding Force Majeure Clauses

Force majeure clauses protect you from responsibility if you can’t uphold your part of a contract because of a major unexpected event like:

• Natural disasters
• War
• Riots
• Pandemics-sound familiar?

If you can’t hold up your end of the deal because of one of the unexpected events, you are not responsible to the other party. 

Force majeure clauses are common in most contracts. A sample force majeure clause might look something like this: 

"Neither Party will be liable for any failure or delay in performing an obligation under this Agreement that is due to any of the following causes (which causes are hereinafter referred to as “Force Majeure”), to the extent beyond its reasonable control: acts of God, riots, war, terrorist acts, epidemic, pandemic, quarantine, civil commotion, breakdown of communication facilities, natural catastrophes, governmental action, changes in laws or regulations, national strikes, or fire."

Here's how it works:

• Both sides agree to include a force majeure clause in their contract.
• If a qualifying event occurs, the affected party does not have to perform their obligations.
• This can include things like extending deadlines or canceling the contract.

A simple example 

Imagine you own a small factory that makes fasteners in Rockford, Illinois. You have a contract to supply parts to a car manufacturer.

Suddenly, a tornado hits the area. Your factory is damaged and can't produce parts for several weeks.

Your contract has a force majeure clause that covers natural disasters like tornadoes.

In this case, you would not have to deliver parts during the time your factory is shut down. And you won't be held responsible for breach of contract.

What This Means for You 

Okay, so why should you care about this? A well crafted force majeure clause can protect your business from unexpected events.

Here are some advantages:

• Protection: It can shield you from responsibility when events are truly out of your control.
• Flexibility: It allows for adjustments when unexpected things happen.
• Fairness: It prevents one party from being unfairly penalized for events they couldn't prevent.

But there can be downsides. 

If challenged, you would have to show the event was actually beyond your control.

Sometimes, it can be straightforward like the example above. But if you are not specific enough, it can lead to disagreement and lawsuits. And courts will usually not broaden the clause to cover more than what is written. 

Not to mention, what if you are relying on someone else to hold up their end of the deal? If they don’t, you could end up in a bind. 

Best Practices

So how do you make sure that you are protected? 

Here are some tips:

1. Be Specific: Clearly define what events qualify and which don’t.
2. Consider Downside: Identify what the downside will be for you if the event happens.
3. Negotiate Consequences: Discuss with the other side what will happen if the event occurs (cancel the contract, option to buy somewhere else, etc.). The consequence here should be tailored to offset whatever your downside is. 
4. Get Help: Call your small business lawyer if you don’t understand something or need advice. 

Force majeure clauses protect you from responsibility if you can’t uphold your part of a contract in the event of a major unexpected event. They're all about protecting you when life throws a curveball at your business.

But here's the thing - you've got to be smart about it. They might seem straightforward. But they can be tricky. 

Be very specific when negotiating and writing the clause. And make sure you understand the boundaries and potential downsides to the agreement. Poorly written force majeure clauses can lead to significant disagreement. 

If you're not sure, it's a good idea to talk to a small business lawyer.

A good lawyer can help protect your business and ensure your force majeure clause is fair and effective.

Did you find this article helpful?

Share it!