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The Importance of an Effective Force Majeure Clause

Those engaged in construction or other closely related fields know that the wording of a contract can make or break your entire business. Some contractors will create their own agreements to bind themselves and clients together while some will utilize a standard industry form contract purchased from a third party. Either of the scenarios can yield unfavorable results if due care isn't taken in ensuring that certain clauses are included and are written correctly.

When contractors and other construction professionals hear "force majeure," many think of an "act of god" or visions of lightning strikes or an earthquake. But force majeure can mean so much more. A well-drafted contract or agreement will define exactly what a force majeure is and what will happen if such circumstances arise.

Terms of a Force Majeure Clause

"Force majeure" is not necessarily limited to the equivalent of an act of God, but the test is whether under the particular circumstances there is such an insuperable interference occurring without the party's intervention as could not have been prevented by prudence, diligence and care. (See Pacific Vegetable Oil Corp. v. C.S.T., Ltd. (1991) 29 Cal.2d 228). This means that a force majeure is dependent on the type of work that is being done and exactly who the parties are.

Even if a force majeure clause properly and adequately describes the types of incidents that are covered by the clause, problems could still exist if the clause is not completely clear. For example, if a contractor is laying a building's foundation, and an earthquake would be considered a force majeure, if an earthquake occurs, what is the course of action for the contractor to take? And what happens to his contract? Does it terminate, or does the contractor have the ability to continue work? If additional work is needed how much compensation is due to the contractor? These are all questions that must be asked and answered by the contractual language itself.

Although the contractor and the owner/developer may have come to an oral agreement on what a "force majeure" or an "act of god" is, a court will generally not consider the oral agreement because it will look to the evidence of the contract language itself. Parol evidence (proof of an agreement outside of the contract itself) is properly admitted to construe a written instrument only when its language is ambiguous. (See Winet v. Price (1995) 4 Cal.App.4th 1159). This means that if the terms of the contract between a contractor and a client are clear, a court will not look to any other evidence that would contradict the terms of the contract.

Thus, although there may be an oral agreement as to how the force majeure clause is to be interpreted, or maybe the contractor is looking to interpret a contract a certain way after an incident, the contractor and the owner/developer must put their agreement in the contractual language at the outset of the project. Otherwise, a contractor risks being fully liable for delays and extra costs that it believes were caused by a force majeure or an "act of god."

Consult an Attorney Today

As a contractor or related construction professional, it is imperative that your contract terms state exactly what you mean. If you are concerned that your contracts or agreements may not be up to par, it is critical to meet with experienced construction law attorneys that can review your documentation. Similarly, if you are involved in a dispute relating to a force majeure clause in a contract or any other contractual dispute, the experienced attorneys at Bowles & Verna LLP are here to help. Contact our construction practice group today for a free consultation.

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