The force majeure clause can cover unforeseeable events that prevent the performance of a contract. These circumstances can include acts of government. The party seeking to invoke this clause must prove that the governmental regulation caused the delay in performance. In this case, a government-sanctioned disaster has prevented the performance of a contract. A contract containing a force majeure clause should clearly state which circumstances qualify as such.
Whether a contract includes the term “force majeure” is a question for both the business and the parties. While the specifics of a particular contract may be different from those of another state, many courts have applied principles from other states. This doesn’t mean that Michigan courts are likely to wildly diverge in the interpretation of force majeure. Nonetheless, a business should be aware of the implications and consider drafting its contract accordingly.
Impact on supply chain systems:
The recent Coronavirus pandemic has impacted supply chain operations to an unprecedented extent. This virus has caused significant disruption and change in both the manufacturing and retail sectors. A clause in a contract called “Force Majeure” refers to an event beyond the control of a party. While the word force is a strong one, there are many more implications than the recent pandemic. Here, we will look at the impact of force majeure meaning on supply chain systems.
If a company is concerned about its supply chain systems due to a coronavirus outbreak, it may be necessary to review its contractual provisions. As the severity of the outbreak is increasing every day, an organization should consider redrafting its contracts to include force majeure clauses. This will reduce the likelihood of future contract complications. Force majeure clauses are common but are often glossed over in commercial contracting. Suppliers are increasingly focusing on force majeure clauses to protect themselves.
Impact on economic activity:
While there is no single definition of force majeure, it can apply to any commercial or financial contract. According to a recent study, force majeure claims began to appear in the U.S. and other jurisdictions in the spring of 2020. This followed a period of extreme interest rate volatility and negative oil prices. On April 20, 2020, West Texas Intermediate crude oil traded at negative $40 per barrel. In addition, extreme weather conditions in Texas caused oil producers to declare force majeure on sales contracts.
Force majeure clauses have been effective in the COVID crisis, but their effect may not be immediately apparent. In some instances, renegotiation is preferable over force majeure in which the relationship continues under new conditions. Force majeure causes many issues in the business world. For example, rapidly rising prices often affect economic activity, making contracts more difficult to enforce. Fortunately, the government is stepping in to help businesses absorb the costs of a natural disaster.
Disputes over force majeure clauses:
Disputes over force majeure clause provisions are increasingly common, and the COVID-19 regulation has resulted in a rise in these disputes. This article provides a framework for resource operators to consider these issues and implement strategies, while avoiding overly restrictive obligations in the contract. It is also important to remember that the force majeure clause does not prevent communication with counterparties. If you or your client is experiencing a force majeure event, you should seek legal advice as soon as possible. For more information visit https://answersherald.com/
Force majeure clauses often include specific exclusions for certain breaches. In the case of In re Hitz Restaurant Group, for example, the contract explicitly excluded “Lack of Money.” However, the court found that the government action superseded the exclusion, and partially relieved the debtor of its rent obligation. Thus, it is crucial to understand your contract’s force majeure clause in detail.
