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A force majeure clause excuses or delays contract performance when specified events of superior force occur. These types of events are typically beyond the control of the parties and are described in the clause itself or specified in the defined term, force majeure or event of force majeure. The affected party is often contractually required to overcome the force majeure. If the event lasts for an extended period, the clause will often trigger a party's right of termination or renegotiation.
Access our Transactional Precedent Database for Force Majeure Clauses in publicly filed agreements.
Purpose of Clause
The intent of a force majeure clause is to relieve a nonperforming party from liability when performance is prevented by circumstances beyond the party's control, such as natural disasters, war, acts of terrorism, civil unrest, and strikes. Because a party cannot control these events, basic notions of fairness and efficiency suggest that performance should be either delayed or completely excused. To protect against breach due to these events, the parties may opt to purchase insurance from a third party or include a provision in the agreement that explicitly addresses the effect of force majeure on the parties.
The precise definition of the term force majeure or event of force majeure should be tailored to the nature of each agreement. For example, many clauses often include acts of war as events of force majeure. However, if one party is a military contractor, the parties may necessarily wish to adjust the clause when acts of war are the subject of the contract.
It is also important to state whether performance should be excused or merely delayed. In general, a party is not allowed to excuse or delay its own performance. It might be appropriate to entirely excuse routine performance, such as the preparation of a monthly report, because resumed performance supersedes any missed reports once the event of force majeure has passed. However, delivery of goods for which payment has already been rendered may warrant allowing the parties to delay, rather than excuse, performance. If performance is delayed, the agreement may need to specify whether the overall term of the contract should also be extended.
The effect of force majeure events may also fall unequally on the parties. For example, an event may prevent a party from physically providing goods or services, but rarely will an event prevent the other party from making a regularly scheduled payment (unless the banking or financial system is brought to a standstill). In this example, a party is obliged to pay for goods that have not yet been delivered or for services that have not been rendered. Payment may therefore be specially mentioned in a force majeure clause. Thus, whenever one party is permitted to excuse or delay its performance, the other party may require corresponding rights to excuse or delay its payment.
Scheduling, term, remedies, damages, and liquidated damages provisions may also be impacted by force majeure events. The contract should be examined to adjust penalties or extend the term in light of a permitted excuse or delay in performance. When resumed performance is critical, more extensive and detailed planning and cooperation provisions may also be warranted.