Q: You’ve put down a hefty deposit to have a custom piece of machinery built or maybe to have a new warehouse constructed.  Can the party with whom you contracted use as an excuse for its non-performance, its unexpected inability to obtain financing, or an unanticipated rise in the cost of materials due to the global economic crisis?

A: Standard “force majeure” clauses exempt contracting parties from fulfilling their obligations when they are unable to perform for reasons beyond their control. Such clauses usually list as examples acts of God, acts of government, war, riot, insurrection, strikes, labor disputes, fire and flood - and they often include a catch-all phrase like “and any other causes beyond the parties’ reasonable control.”  Force majeure clauses have become so common in business contracts that they are often overlooked – a mistake that can be costly.  While most US courts are still reluctant to hold that financial hardship is grounds for non-performance under a standard force majeure clause, if the clause is modified during contract negotiations to include a simple phrase like “change in economic conditions” or “market fluctuations,” the force majeure clause could insulate the non-performing party from all liability!

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