Boilerplate Blurb: Act of God or Force Majeure Clauses

So last week I discussed the “Clickwrap” type of agreement, heavily favored by online retailers, app makers, and video game console giants. Remember, in general, I mentioned that these agreements are known as adhesion contracts or the take-it-or-leave-it contact. In these agreements the party that drafted the agreement has much more power and many times courts will peruse these contracts in consumer situations due to the imbalance of power.

However, today I will be turning to a higher power and given all the wind and rain here in the islands of the past week I though it would be appropriate to discuss act of God or force majeure (which means “greater force”) clauses.

Example Situation of When this Clause is Applicable

To give this clause a better context, consider you have opened shop and promised to deliver 1,000 menehune widgets to a mainland company in exactly 1 months time. However, it is hurricane season and two weeks from when the agreement was made your factory has rain and wind damage and you will be unable to fulfill the order. The mainland company was depending on that shipment to make their product for an event, the result is they lose out on sales.

Explanation

If there is a force of majeure clause it would excuse performance under the agreement under these circumstances. Basically, it is clear that performance is impractical under the situation due to the hurricane.  No amount of due diligence and/or care could have avoided the disaster and the party would have been able to accomplish the task nude the contract. It is clear that a hurricane is not under the control of person, thus it is an act of God or a force of nature. However, this clause is not only limited to purely natural disasters, but can include ones induced by human action, such as drilling and excavation that causes landslides or the changing of the land so there is a flood.

Further Discussion on Human-Controlled Situations

In general force majeure clauses cover three kinds of scenarios. One of them being the natural disasters, as just discussed. However, human events, such as riots, wars, or major societal upheavals are also covered. Consider, that a lot of things are produced overseas and the location of the factories. Here it is good to understand supply chain management on the business end, and then really think how an act of God clause is sometimes a necessity for a contracting party.

What’s the Third Situation?

The third situation are those man-made technical problems. No, I am not talking about the blue screen of death on your PC, but rather more severe performance failures where the contracting party has no control. Things like the telephone service going out due to the telephone company, labor strikes (not due to the contracting party),  and government restrictions and regulations. The main thing is that similar to the other situations, these technical and performance issues arise not out of the party’s control, but someone else’s. Thus, simple computer failures and software glitches are not covered, but may be a systematic power outage or server-wide failure might.

Main Point

The main thing to take away is that in these situations an act of God clause will excuse the party that fails to deliver or is delayed because of these kinds of scenarios, but the clause does not cover failures when it is due to the party’s financial condition or its own negligence.

Sample Language

Force Majeure Event ” means any cause(s) which render(s) a Party wholly or partly unable to perform its obligations under this Agreement (other than obligations to make payments when due), and which are neither reasonably within the control of such Party nor the result of the fault or negligence of such Party, and which occur despite all reasonable attempts to avoid, mitigate or remedy, and shall include acts of God, war, riots, civil insurrections, cyclones, hurricanes, floods, fires, explosions, earthquakes, lightning, storms, chemical contamination, epidemics or plagues, acts or campaigns of terrorism or sabotage, blockades, embargoes, accidents or interruptions to transportation, trade restrictions, acts of any Governmental Authority after the date of this Agreement, strikes and other labor difficulties, and other events or circumstances beyond the reasonable control of such Party.

While, I do not necessarily agree with this example (as it starts looking like a disaster movie as people who get carried away throw everything in) it does give you the flavor of what a force majeure clause is trying to accomplish within an agreement. Anyway, if you enjoyed this post or any of my others please “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

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