Force Majeure: A Get out of Jail Card

No it is not a hand in Bridge or Gin Rummy. It is a legal term. Did you ever sign a contract with a Force Majeure clause in it?

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This poorly understood clause is often glossed over or omitted when it should not be. The fact is, for many sales people, it is one of those "non clauses" about something that cannot be controlled or never likely to be exercised.  But it is useful to understand how it may be used as it could save you or your company a lot of pain.

Basically, it is a get out of jail clause for liability from acts of god that may stop your ability to deliver on your contract

I looked it up in Wikipedia which defines it as a "common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties occurs.”

Penalties for failure to meet contract obligation can be severe. Imagine your factory is destroyed by a bush fire and customers coming to sue you for non delivery. If you are able to claim Force majeure you may be protected. Then having a Force Majeure clause in contracts makes sense.

Here is post by a fellow Linked In member of the eMarketing Association and senior manager at Verizon, Jim Anderson.  In it he describes "Force Majeure: further and cites examples at Alcoa. Here is Jim’s Force Majeure Post.

For many of us managing risk, it is about understanding what we don’t know, as that usually catches us out. In this case, if you are not full bottle on force majeure, I would quietly recommend you consult with your legal department to see how it may impact you.

5 thoughts on “Force Majeure: A Get out of Jail Card

  1. @lawrence berezin
    Larry,

    Many thanks for your comments. You bring with it a great stimulating question for wider thinking.

    What a delightful notion that greed can somehow be attributed to an act of nature. But my immediate answer is the concept of using Force Majeure to cover commercial and financial risk shortcomings, seems to be stretching it a bit.

    But I am happy to engage in the challenge of the debate further given the idea of a Financial Tsunami is such an eloquent and emotive metaphor.

    I can see a point that, to someone wiped out overnight when finances dried up, may easily conjure up a concept of a shock wave that carried the destructive economic downturn forces around the world. And therefore it could seem reasonable to claim force majeure on the basis the event is extraordinary.. and so on.

    From what I understand, the epicenter of the shock wave was actually a financial keystone that fell out of the fragile money arch that most people thought was a rainbow with pots of gold on both ends.

    This caused massive piles of financial institutional and corpoate excesses to come crashing down like a pack of cards. Being created by the long unchecked run of commercial greed across the globe that ignored the time proven lessons about taking risks in moderation, it seemed inevitable something would break for quite a long time, before it all came tumbling down.

    Risk is by nature is what supply and demand business is all about. And this is especially so across international supply chain boundaries and globally integrated economies we all worked in now. So I would argue it is still commercial risk with “somnumna “the only likely result for Avarice and negligence.

    But maybe if I was an exposed supplier I would argue another viewpoint. But in the end if I was on the sharp end I would always defer to your greater understanding and seek professional advice.

    Your generous comments are always most welcome. Likewise I enjoy reading your informative posts on your commercial site and on twitter.

    Cheers

    Gordon

    PS..

    As a young commercial guy employed thru the 70’s in a global enterprise, I learned many lessons about limiting exposures to liquidated damages, consequential liability and having financial risk structured for negotiable balance. The burden of responsibility in the event of acts of God was something that was often commercially debated, but we always insisted and relied on Force Majeure.

  2. Gordon,
    Point well taken. It’s a clause that should always be included in a contract; though rarely used. I’ve recently heard some lawyers trying to use the force majeure clause to cancel contracts due to the global financial tsunami. What do you think of that?

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