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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