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A commercial contract may include a force majeure clause

On Behalf of | Jul 22, 2021 | B2B Commercial Law, B2B Commercial Litigation |

Catastrophic events that can devastate a business may occur unexpectedly and without warning. If a company has an existing contract, its performance may become impossible to complete.

As noted by the American Bar Association, a force majeure clause may excuse a party from a contractual obligation without incurring penalties. The clause’s relevant events, however, typically reflect clearly defined circumstances.

Force majeure clauses require descriptions of uncontrollable events

An enforceable force majeure clause requires language that defines the exact events that allow parties to delay or excuse themselves from their obligations. A natural disaster, for example, may require a definition of hurricanes, floods or earthquakes.

Unexpected acts of terrorism, war or unusual business shutdowns may require adding their specific definitions. Parties may also negotiate what material actions can trigger force majeure circumstances.

An excusable breach reflects a direct result of a described event

Effective force majeure clauses must also describe the connection between an uncontrollable event and breaching a promise. In one related case reported by Houston Public Media, a Texas gas marketing company filed legal action against a large energy company alleging a breach of contract for failing to supply all of the agreed-upon natural gas.

The energy company’s response claimed a winter storm prevented it from supplying the gas. The company also claimed force majeure excused its performance. Natural gas continued to flow during the storm, however, and the company still supplied less than the contract required. As a result, force majeure may not serve as an enforceable pardon for a possible breach.

Companies may protect their assets by exercising a force majeure clause when uncontrollable events occur. Enforceable contracts may include clearly defined descriptions of both the events and how they may affect each party’s obligations.