As a business owner, you are accustomed to facing challenges. Entering into binding contracts with other parties can help protect your business from uncertainty. However, what happens if you or the other party encounters a situation where carrying out a contract is difficult, if not impossible? Would you or the other party be in breach of contract?
Force majeure and contractual performance
You may have heard the term “force majeure” or have seen this term appear in recent news articles, but what does it mean? A force majeure clause considers unexpected events which may delay or prevent one party from upholding their end of the deal. “Acts of God” are often covered by a force majeure clause and may include:
- Volcanic eruptions
A force majeure clause can be as broad or as narrow as you and the other party care to agree upon. If a clause identifies a specific event such as a disease, public health emergency or pandemic, you or the other party is likely protected from having to perform the terms of the contract in such a situation. Conversely, if your contract is specific about the acts of God it excuses, it may not excuse a disease, public health emergency or pandemic. A vaguely defined clause offers you less protection against someone else’s breach of contract.
Showing a reason for nonperformance
To enact a force majeure provision, you or the other party must show a causal connection between the event and the inability to perform the contractual duty. Depending on the language of your contract, this may excuse performance entirely or allow for a delay until circumstances have changed.
Historically, courts have interpreted force majeure clauses narrowly. Forseeability is a major factor, along with whether it is possible or impossible to perform the terms of the contract. Some events may be so unexpected that they strain the very limits of your agreement and may trigger other provisions in the contract.
What are your rights and responsibilities when the future is uncertain? There is no simple answer to this question. You should seek assistance to help you assert or defend your contractual obligations.