What Constitutes Force Majeure

When a “force majeure” event occurs, it prevents a party from performing its obligation under a contract in that either the event could not have been foreseen or could not have been prevented even with care and diligence. While many people think of natural disasters when considering force majeure clauses, this category can also pertain to wars, government actions, and pandemics.

Just because a specifically enumerated event occurs, does not mean that a force majeure clause becomes effective. Instead, for the force majeure clause to come into play, an event must result in “extreme and unreasonable” difficulty or hardship. 

A force majeure event will also not excuse a performance if the failure to perform is the result of a party’s negligence instead of the event itself. If a party to a contract could have prevented the force majeure event, the force majeure will likely not be effective. 

The Role of Force Majeure in Business Contracts

There are several ways that parties can be protected if there is a force majeure in their contract. If a contract’s purpose is frustrated or incapable of being performed, the clause can protect a person through the doctrines of impracticability or impossibility. 

Force Majeure and the Coronavirus

Because force majeure can encompass government actions that make contract performance impossible, these clauses are likely to come into play in various contracts during the COVID-19 pandemic. In this setting, a force majeure might take the form of a lockdown order or other government action that makes it impossible to perform a contract. 

Advice When Considering the Use of a Force Majeure Clause

Some helpful strategies that parties navigating force majeure clauses should remember to follow include:

• If you plan to use the COVID-19 pandemic as a reason to not perform under a force majeure clause, make sure to give the other contracted party ample notice.
• Remember to discuss potential business solutions with the other party. While the coronavirus has resulted in delays in shipment, reduced supplies, and other hardships, it might still be possible to arrive at an acceptable arrangement.
• The strongest arguments that a force majeure event has occurred and made the terms of a contract impossible often involve government actions taken to control COVID-19 as well as unanticipated disruptions of the supply chain. 
• Force majeure is a temporary defense and only applies for the time that the event restrains a party’s performance under a contract. 
• To learn even more about the relationship between force majeure clauses and the coronavirus pandemic, considering reading the American Bar Association’s recent article “Is the Coronavirus a Force Majeure that Excuses Performance of a Contract?”

Speak with a Knowledgeable Corporate Law Attorney

How “force majeure” applies to the COVID-19 pandemic remains largely unsettled. Fortunately, an experienced corporate law attorney can help you navigate this important issue and many others. Contact Resnick Law PC today to schedule a free case evaluation. 

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The Basics of Investor Agreements

Investor agreements outline the terms of an investment in a company. These agreements should include several important terms, such as: 

• The addresses, dates, and names of each of the parties to the agreement
• The amount of money that is being invested as well as details about how the investment will be used
• Payments terms about how the payment will be made and the dates on which the payment will occur
• The type of investment
• The length of time that the investor agreement will be valid
• Any deliverables to be fulfilled by certain dates
• Any products or services to be developed and certain dates

The Return on Investment

The agreed-on return on investment (ROI) should also be included. Terms should include details about what the investor will receive in exchange for the investment. You might decide that the ROI should be a flat interest rate or even a percent of the success of the investment. 

Escape Clauses

Investor agreements should address what will happen if the company ends up filing for bankruptcy or dissolving. Any risks associated with an investment should also be fully disclosed. Doing so protects both parties in case the company encounters challenges. 

Investor Management

Sometimes, parties decide to give an investor either control or management rights within the investor agreement. If you decide to utilize this relationship, it should be contained in your investor agreement. Similarly, companies sometimes decide to give investors voting rights to the company so they can participate in making business decisions. 

Strategies

The role that outside investment plays in growing a business is a complex one. As is true with other types of business deals, it is not without risk. As a result, investment agreements often contain provisions that limit a party’s ability to provide contract value payouts in some situations. When evaluating investment options, it is a wise idea to fully understand the potential risks involved with each term of the agreement. 

Contact an Experienced Corporate Law Attorney

Investing is a complicated and risky process. To make matters even more complex, after a company secures an investor, the relationship is not over. Instead, companies should make sure to avoid substantial challenges by properly drafting all investor agreements. 

Contact Resnick Law today for assistance navigating any of your contract-related challenges. 

(image courtesy of Luca Bravo)