The pandemic and the government stay-at-home order have significantly impacted most businesses and business owners. As a result, there are instances where business contracts are not honored. This raises the question whether the force majeure clause can pardon contract non-performance.
The force majeure clause is a time-hallowed contract defense. The clause protects either party when they cannot honor contracts due to events beyond their control. Note that if the court finds that an event was within a party’s control, the defense will not be applicable.
Most contracts have the force majeure clause. Unfortunately, very few cases in North Carolina interpret the clause.
If you are a business owner who wants to enforce a force majeure clause, you may be wondering whether the courts will rule in your favor. This article is for you. We will discuss the force majeure clause in detail and what courts are likely to consider before ruling in your favor or against you.
Will courts rule in your favor? What are the possible considerations?
It is a little bit difficult to predict how North Carolina courts would decide cases touching on non-performance of the contract regardless of whether a party seeks to enforce a contract or excuse performance. However, there are critical considerations that courts are likely to make. They include;
- Whether there was a proper prior notice in view of the force majeure clause.
- The specific wording of the clause in the contract. Some contracts have extensive force majeure clauses that list possible events, while others have a general clause.
- Whether the issue in question, e.g., the pandemic, was the cause of breach of contract.
How to ensure that the force majeure clause works in your favor
The force majeure defense starts and ends with the contract. Therefore, to use this defense, you need documentation. For the clause to work in your favor, you need to document the impact of the issue at hand, e.g., the pandemic, in detail. Additionally, you need to ensure that the documentation aligns with your contract’s force majeure provision.
What if there is no force majeure clause?
Although most contracts in North Carolina have the force majeure clause, there are a few that don’t. In such instances, you may rely on these two doctrines;
- The doctrine of frustration of purpose
- The doctrine of impossibility.
In the frustration of purpose doctrine, the performance of the contract is still possible. However, an unforeseen event causes a failure of the consideration or destroys the expected value of the performance. Note that this defense does not apply in cases where parties could reasonably foresee the frustrating event.
If your contract does not have a force majeure clause, yet you seek to be excused from performance, you can use this doctrine as a defense. However, if you choose to use this doctrine in matters relating to the pandemic, note that the court will greatly rely on the wording of the agreement/contract and facts, i.e., whether the expected value of the performance is destroyed.
The doctrine of impossibility excuses a party from non-performance in instances where the subject matter of the contract is destroyed without the fault of either party. In this doctrine, the subject must be destroyed.
The chances are that this doctrine may not be applicable on issues relating to the pandemic, but it may come in handy in other instances. The court greatly relies on the facts in such instances.
Contact Our Raleigh Business Lawyers
Utilizing the force majeure clause in a contract can be complex, and it’s important to have an experienced business attorney at your side. Wilson Ratledge has the experience to be your trusted advisor when working through contract issues in your business. Contact us today at 919-787-7711 or fill out our online form to schedule a consultation with one of our business contract attorneys.