Contract Terms to Know: Force Majeure

We are doing a deep dive into specific contract terms so you will know why they are in the contract.

“Force majeure” is French for superior power.  Why then, is this phrase included in most American contracts?

A typical force majeure clause looks something like this:

Force Majeure. A party shall not be liable for any failure of or delay in the performance of this Agreement for the period that such failure or delay is due to causes beyond its reasonable control, including but not limited to acts of God, war, terrorism, strikes or labor disputes, government orders or any other force majeure event.

As you can see, this provision allows a party to suspend or terminate the performance of its obligations when circumstances beyond his or her control arise.

The phrase “acts of terrorism” was added to many contracts after 9/11.

In the past two years, we have been adding “closures required by governments” or similar language to deal with the extraordinary business interruptions caused by the COVID pandemic and governmental mandates to deal with it.  As you can imagine, lawyers throughout the world were trying to figure out whether tenants were excused from paying rent when governments forced businesses to close. Is that an event beyond the control of the tenant that excused them from having to pay rent? Often the answer lay in the force majeure clause in the written lease.

The list of events to be included is a matter of negotiation between the parties. A typical list of force majeure events might include acts of God (flood, fire, hurricane, tornado, typhoon, earthquake, lightning), acts of war or terrorism, labor unrest (strikes, lockouts, slowdowns, transportation delays), prolonged shortage of supplies, or acts of state or governmental action.  If any of these events prohibits or impedes a party from performing its contractual obligation, the performance is suspended for the length of time performance is impossible.  For example, if a hurricane damaged a bridge to a barrier island in eastern North Carolina, the seller of goods is not liable for goods that cannot be delivered while the bridge is closed. 

Without a force majeure clause, parties to a contract who cannot perform, have to argue that performing the contract should be excused under the doctrines of "impracticability" or "frustration of purpose". These are difficult and costly defenses.