A hurricane, a tornado, a global pandemic – we hope they never happen, but any corporate lawyer knows how vital it is to draft a contract as if these events are an inevitability. For parties involved in a contractual relationship, the law provides a way for them to prepare for the eventuality that the performance required under a contract becomes impossible due to a force majeure, also known as an “act of nature” or “act of God.”Texas law on the interpretation of force majeure clauses provides an outline for the thoughtful drafter, business attorney, or business person reviewing these clauses in light of the coronavirus epidemic.
As Sun Operating Ltd. P’ship v. Holt illustrates, “the theory of force majeure has been existent for many years.” Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d 277, 282 (Tex. App. — Amarillo 1998, pet. denied). A clause included in most contracts, the force majeure clause allows a party to excuse its performance of a contractual obligation when performance was prevented by causes beyond a party’s control. Id. See also 6A CORBIN, Corbin on Contracts § 1324 (1962).
In Texas, there is no such thing as a standard force majeure clause, and the particular words used in each clause will have a significant impact on whether or not a party may invoke it to excuse performance. As the Sun Court explained, a force majeure clause “is utterly dependent upon the terms of the contract in which it appears.” Id. at 283. Putting a fine point on the supremacy of the particularity of force majeure invocation, the Sun Court continued: “when the parties themselves [define] the contours of force majeure in their agreements, those contours dictate the application, effect, and scope of force majeure.” Id.
Given the importance of the specifics found within each clause, what should one consider when drafting a force majeure clause?
- Define your events of force majeure specifically. It is standard practice, and a good idea, to include general events like fire, tornado, flood, hurricane, and act of God (see below) as force majeure events. These general force majeures are not sufficient, however, given the fact that Texas courts require the event excusing performance to be (i) negotiated or (ii) unforeseeable. Depending on your industry, you might want to include phrases like “drilling operations are stopped due to lack of water” or “medical supply production is ceased due to a lack of material or workforce for production.” The more specific you are, the more enforceable the clause is likely to be, but the less likely you are to be able to invoke it.
- Include a catchall provision. Texas courts will narrowly construe a catchall provision in a force majeure clause based on the doctrine of ejusdem generis: when a list of specific events is included in your force majeure clause, the catchall provision will be interpreted to refer to unforeseeable events of the same type.
- Require notice that is specifically defined. Avoid use of the generic phrase “give notice” because failure to adhere to a notice requirement in a force majeure clause could preclude reliance on said clause. Advanced Seismic Tech., Inc. v. M/V Fortitude, 326 F.Supp.3d 330, 336-37 (S.D. Tex. 2018). Rather, define the manner of notice required (is it practical to require written notice in the event of a terrorist attack, for example?) and be sure to include words like “reasonable” and “practical.” [For example, reasonable notice is required as soon as practical.] Also, pay close attention to the method of delivery required for notice. It might not be possible to deliver a certified mail return receipt requested in the middle of an unforeseeable emergency. Finally, tie the time required for notice to a specific trigger. In the case of a pandemic, when does that event begin for notice requirements? When a government entity issues a health emergency? When business becomes impossible or impractical? These are all important considerations for business attorneys to consider when drafting a force majeure clause.
- Make the standard to invoke the clause clearly defined. Force majeure clauses typically require that performance of a particular event required by a contract be impossible, impracticable, or illegal for performance to be excused. Which you choose will be specific to your industry and the particulars of the contractual performance in question.
- Move beyond the phrase “act of God” to more specific language. As alluded to above, Texas law construes “act of God” narrowly, requiring such act to be unforeseeable in order for performance under a contract to be excused.
In conclusion, drafting an effective force majeure clause requires careful attention to the specific nature of the contractual relationship, the industry to which the contract applies, and whether or not a generic event in the clause was foreseeable or not.
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If you believe your contract has been impacted by a force majeure (or, an act of nature or God), we can represent you in this matter. This legal principle may apply to your situation during the COVID-19 outbreak. If you believe your contract has been impacted by the new coronavirus, The Jones Law Firm PC can assist you with your legal concerns.