Is a Force Majeure Clause in a Contract Effective in Alabama?

Force majeure clauses are one of the most addressed topics among the legal community amid the COVID-19 pandemic. There are as many companies trying to enforce them as there are fighting them. A force majeure clause offers an opportunity to terminate a contract or evade liability in the light of unforeseen circumstances.

If parties need help with how force majeure clauses affect your existing contracts, speak with an Alabama business lawyer for advice. While every situation is unique, this post discusses what a force majeure contract is in a contract.

What Is a Force Majeure Clause?

A force majeure clause excuse contractually-obligated parties from liability if extraordinary events, or “acts of God,” occur. Many business contracts contain force majeure clauses. If an unforeseeable event makes it virtually impossible for either party to satisfy a mutual obligation, the force majeure clause gives them an opportunity to terminate or modify the agreement without the normal consequences of a breach.

What Are Acts of God?

The term “Acts of God” paints a broad stroke across the possibilities of what is considered an extraordinary event. What may seem disastrous for one party may not appear that way for the other party to the agreement. As such, many business contracts describe, in detail, what is covered by force majeure.

Some of these terms mentioned include:

· Acts of war,

· Terrorism,

· Riot,

· sabotage, or embargos

· Economic disruptions like strikes and market crashes

· Other forms of government legislation that affect the contract

From the aforementioned list, one can deduce that acts of God are highly disruptive, problematic events. In recent times, force majeure clauses have been an area of intense focus for many Alabama contract attorneys and business owners.

Does a Contract Require a Force Majeure Clause?

A contract does not require a force majeure clause. However, it is wise to include them in agreements.

When a contract omits a force majeure clause, the default protocol is to follow the “common law” of contracting. There is a long history of relying on trade norms, and courts in Alabama have long utilized the course of dealing for resolving disputes.

These default rules at the state and federal level will determine what happens if there is an issue between the contract parties.

However, if a clause is present, there are two channels one can take to terminate or enforce a force majeure clause:

1. Impracticability: Contracts can be terminated for an unforeseen event.

2. Frustration of purpose: Unforeseen events can fundamentally change the nature of the agreement, which means that it should be allowed to be terminated due to performance.

While these laws may seem straightforward and provide enough coverage, it is challenging to apply without specific guidelines. For example, these rules do not specify what undue burden is or account for unknown events. The problem is that they can be taken to literally or not literally enough.

Depending upon the jurisdiction, common laws could allow for contract terminations due to performance. Overall, the best decision is to draft business contracts that are tailored for the specific situation of your business.

Review Force Majeure Clauses with Great Scrutiny

It is imperative for contract parties to carefully review the force majeure clause of business contracts for what acts it covers. If the contract has no language that classifies a public healthcare crisis as a qualifying event, then one may not be able to invoke the clause to terminate the agreement during the COVID-19 pandemic.

Here are a few considerations that prospective and current business owners should take when considering force majeure clauses and provisions:

Two Elements Must Be Met

Not only does a force majeure clause necessitate the identification of a triggering event, but it must also prove that the terminating party is unable to meet its contractual obligations because of that event.

For example, if one works as a consultant from home, even before the pandemic, the consultant may not be able to cancel a contract due to COVID. This assertion is especially true if he or she can continue to provide services as described in the contract without any hardship. Essential businesses could also fall into this category.

Performance Requirements Play a Role

In addition to ability and specification, force majeure clauses could also contain information related to party performance requirements.

There are opportunities to delay deliverables and services until the situation returns to business as usual. In other situations, the issue of performance can be excused altogether. Some parties may also establish that a contract automatically terminates under force majeure after several events pass.

By Sarah S Shepard, LLC, Alabama

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