By Leisa Boley Hellwarth, a dairy farmer and attorney near Celina
Twenty-nine years ago I recall sitting in my contracts class rolling my eyes at the discussion of force majeure. It seemed like such an impractical, academic concept that I doubted I would ever use it in practice. Wrong.
The term is French and means “superior force”or “unavoidable accident.” Force majeure is a common clause in contracts, including agreements for production agriculture, contract growers and custom feeding. The provision essentially frees both parties from performance when an extraordinary event or circumstance, beyond the control of the parties, such as a war, strike, riot, epidemic, pandemic or an event described by the legal term act of God, prevents one or both parties from fulfilling their obligation under the contract. The effects of the coronavirus on the food chain are likely force majeure under many legal situations.
Pillsbury Company, Inc. v Wells Dairy, Inc. is a 2008 Iowa case that illustrates force majeure. Pillsbury entered into a contract for the production of Haagen-Dazs ice cream. There was an explosion at Wells Dairy’s south ice cream manufacturing facility. On Aug. 8, 2002, Pillsbury filed its two-count petition alleging Well’s Dairy’s breach of contract and negligence claims. Wells Dairy raised the “force majeure” clause of the production contract as an affirmative defense. The production contract contained a force majeure clause which stated that “neither party will be liable for delays or suspensions of performance (other than the obligation to pay for services and goods sold and delivered) caused by acts of God or governmental authority, strikes, accidents, explosions, floods, fires or the total loss of manufacturing facilities or any other cause that is beyond the reasonable control of that party so long as that party has used its best efforts to perform despite such force majeure.” Ultimately, the court found the force majeure clause relieved Wells Diary from performing under the production contract.
Force majeure is intended to include occurrences beyond the reasonable control of a party and would not cover the result of negligence of a party. For instance, if the actions of Wells Dairy in the previous example caused the explosion at the south ice cream manufacturing facility, that is not force majeure.
Force majeure is not a result of the usual and natural consequences of external forces. Let’s use an example of an outdoor public event abruptly called off. If the cause of the cancelation was ordinary, predictable rains, that is not force majeure. If, however, the cause is a flash flood that damages the venue or makes attendance hazardous, it is force majeure. If the area is known flood plain, it is not force majeure.
Any circumstances that are specifically contemplated in the contract are not force majeure. And the language creating the force majeure exception matters. When in doubt, seek legal counsel before you sign the agreement.
There was major litigation in Delaware recently involving the sale of a majority interest in Victoria’s Secrets to Sycamore Partners for $525 million. The deal was signed on Feb. 20, right before the coronavirus pandemic hit. Davis Polk & Wardwell represented Victoria’s Secrets. They drafted an acquisition agreement that included specific exemptions to acts of God, including a pandemic. That meant that even if a pandemic struck, Sycamore would be legally obligated to complete the deal.
Legal analysts predicted it would be very tough for Sycamore Partners to get out of the agreement. They read the acquisition agreement, and they signed it. Other issues, however caused the parties to agree to walk away from the acquisition and sale, with no penalties.
In Ohio, the party invoking force majeure bears the burden of proof. And contract provisions are not excused merely because they have become more difficult, burdensome or expensive.
Review any existing agreements your operation has. Does the contract include a force majeure provision? And how is the concept defined? If your contract provides for force majeure, pay close attention to any notice requirements. When in doubt, have legal counsel review and recommend appropriate action.
Before entering into any new contracts, review closely to verify that a force majeure clause is included. Better yet, avoid boilerplate language and insist on definitions of force majeure that specifically apply to your situation.
The following force majeure clause is from a contract between a farmer and the restaurant he supplies with leafy greens. “This contract is subject to force majeure, and is contingent on strikes, accidents, Acts of God, weather conditions, epidemics, inability to secure labor, fire regulations or restrictions imposed by any government or governmental agency, or other delays beyond the control of the parties.”
Here’s hoping that your business does not need to worry about force majeure. I will leave you with words from the late Maya Angelou. “We spend precious hours fearing the inevitable. It would be wise to use that time adoring our families, cherishing our friends and living our lives.”