Contracts are written agreements between two parties to hold both sides accountable. Businesses often use these as they conduct various transactions. Every contract contains several clauses and terms to ensure that both sides fully understand what they’re responsible for and what to expect from the other party.
One clause that’s often present is known as the force majeure clause. This clause can protect businesses when extraordinary events make it impossible to fulfill contractual obligations. Understanding how these clauses work may be beneficial to those who are entering into a business contract.
What qualifies as a force majeure?
In the most general sense, a force majeure clause covers events that aren’t under the control of either party. This can include things like government restrictions, acts of war, natural disasters and labor strikes. The key is that the covered event can’t be foreseen and must be truly and totally disruptive. For example, a hurricane that shuts down a supply chain could excuse performance if that was part of the force majeure clause.
Why is this important?
If there’s no force measure clause, a business might still be liable for breach of contract, even if the performance was wholly impossible. By having a force majeure clause in place, they can often avoid financial penalties or lawsuits during a crisis. This provides a safety net that ensures that if a disruption does happen, the business isn’t punished for circumstances beyond its control.
It’s critical that anyone who is dealing with a possible contract breach fully understands all of the terms within the document. Only then can they make an informed assessment of the situation and their options.
