Force Majeure Clauses
With the novel COVID-19 (Coronavirus) wreaking havoc across the United States and the State of Georgia, many people have had questions about what they can do to mitigate the damage to their businesses.
Each case is different, and the legal experts at Thrift McLemore can help you in determining your next steps, but two possible options are to trigger the force majeure clause in your contract or to rely on the doctrine of frustration.
First, force majeure or an act of god clause is a specific contract provision found in many contracts. This clause works to limit damages that each party to a contract may suffer if something outside the power of either party occurs. For example, a natural disaster makes it extremely difficult to deliver goods on a specific date despite that date being agreed to in the contract.
To trigger a force majeure clause three criteria typically need to be met: 1) the event must be beyond the reasonable control of the parties, 2) the affected party’s ability to carry out its obligation must have been prevented, impeded, or hindered by the event, and 3) the concerned party must seek to avoid or lessen the damage from the unexpected event. If these three factors are present, the affected party can find relief. This relief could range from negotiating a new deal until the unexpected event is over to terminating the contract without liability.
Second, if your contract does not contain a force majeure or an act of god clause, another option is the doctrine of frustration. This implied contract term works to limit your damages when something unexpected occurs, which nearly destroys the value of your contract.
A contract obligation can be removed under this doctrine if three conditions are met: 1) the unexpected event is not the fault of either party; 2) the incident occurred after the contract was formed and was not expected to occur by either party; and 3) if the party had to complete the deal anyway, even with the event, it would transform the contract into something radically different than what either party intended. If these three factors are met, the parties could be excused from performing the contract. The doctrine of frustration can be applied to many contacts, including leases and other business contracts.
Force Majeure Clauses Legal Questions?
If you have questions about your specific situation, please do not hesitate to contact Thrift McLemore at 678-784-4150.