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What should you know about force majeure clauses?

On Behalf of | Jan 5, 2023 | B2B Commercial Litigation |

Unfortunately for businesses, it is impossible to predict every single catastrophic occurrence that may happen in the course of the business’s lifetime.

These catastrophic events may also make it impossible to complete contracts as related to a business. In these cases, force majeure clauses may get evoked.

Defining a force majeure clause

The American Bar Association discusses force majeure clauses in detail. First, what is a force majeure clause? These exist to protect parties and allow contracts to end or a party to withdraw from a contract without penalty, usually due to a specific and uncontrollable external circumstance.

These clauses require descriptions of the events that may invoke them in order for the clause to have any legal standing. For example, a natural disaster might require a more specific definition of a flood, earthquake, hurricane or so on.

What is needed for excusable breaches?

Other specific definitions might also include acts of terrorism, unusual business shutdowns, war and more. It is possible to negotiate force majeure clauses between parties when forming a contract to ensure that everyone feels comfortable and satisfied with the terms.

To have an excusable breach, it must reflect the direct potential results of any of the events listed in the clause.  The clause itself also needs to illustrate the connection between a breached promise and an uncontrollable event.

In using a proper force majeure clause, it may protect both the company from unexpected losses, as well as contractors from essentially ending up penalized for something entirely out of their control. Thus, it is an important part for parties to collaborate on.