[The following is a guest post from Molly Madonia, Law ’16, a prior guest alumni contributor to the Blog.]
What do the great Beyoncé Knowles and force majeure clauses have in common? They both demand that we put some respect on their check.
Force majeure clauses in transactional agreements have often been used arbitrarily, perhaps as a legalese-y afterthought, as an easy exit from the contract, or even added merely to shift the signature blocks onto the proceeding page. However, in the time of an international pandemic, unpredictable supply chain, and abundant contractual frustration of purpose, force majeure clauses are finally getting their time to shine. Now, these often-tertiary little provisions are single-handedly keeping businesses afloat, keeping creditors at bay, and punching well-above their weight class across all types of contracts.
Force majeure clauses, also known as “Act of God” provisions, state that if performance of the contract becomes impossible for any reason outside the control of the parties, then the parties shall be released of their obligations under the contract. These provisions can be mandatory or permissive in nature, can list the specific causes that would be deemed “outside of the parties’ control,” or can include other language stating the order of operations if the clauses is invoked. In any case, these clauses are now running the show.
We are currently in the exact situation that force majeure clauses were designed to control. While the legal community may not have predicted a global health crisis, the prudent practitioner may have included force majeure clauses as standard contract language. In my practice, the force majeure clause is necessary in all documents – from event sponsorships to artist riders to food and beverage commitments – given that the success of our our large-scale, outdoor event may depend, in part, on the weather. Inclusion of a force majeure clause allows us to plan the festival without concern over things we cannot control. It also sets an expectation from the contractual partner that we are musicians, not magicians, and we cannot control the environment . . . and, thus, cannot refund their deposit if Wisconsin decides to snow in June.
Across other economic segments, these clauses are saving businesses from financial hardship; for example, a release of obligations under a force majeure clause may allow a struggling business to divert valuable funds to masks and employee support, instead of minimum quantities of goods in an unpredictable supply chain. Without a force majeure clause, the contract may be enforceable, sending these fiscally-unstable parties into a host of serious financial issues, including bankruptcy, and leaving its employees without a paycheck.
In sum, force majeure clauses have proven themselves invaluable to the legal practitioner in 2020. I am confident that their usefulness (and pervasiveness) will continue to expand, as legal departments take deeper looks at contractual language, specifics of deliverables, and future dealings.
[Molly Madonia, Law ’16, is associate counsel with Milwaukee World Festival, Inc., the producers of Summerfest™, the World’s Largest Music Festival™, though she did not write this post in that capacity.]