This is the second part in this series. Part one addressed force majeure clauses in construction contracts and how a material supplier may have bound itself to all the terms of the general contractor’s contract documents.  That incorporation can bring the force majeure clause into play for a supplier. It also bypasses the underlying Uniform Commercial Code (UCC) contract regime for the sale of goods and introduces very significant performance risks. The supplier may have unintentionally taken on risks and burdens it did not understand or intend when it entered into the agreement. Contracts allocate risk.  Which party will bear that risk?  What relief, if any, is available?

If the supplier is satisfied that it has not bound itself to the contract documents or the project plans and specifications, the analysis turns to what terms or “paperwork” passed between the supplier and its contractor customer.  Similar considerations apply between the supplier and its own supply chain. 

In many cases, that “paperwork” may consist of little more than an exchange of emails showing the parties agreeing to supply a quantity of something for a price. This may be enough to create an enforceable contract under the UCC, but does the agreement address force majeure?  With so much business done on the internet, a contractor or supplier may decide to post its intended contract terms online.  Both the buyer and the seller need to look closely at their order communications to discover whether those communications do actually incorporate the online terms.  Just posting something on a website does not automatically make it part of the contract.  The phrases “subject to” or “incorporate by reference” should lead the party to look further for a possible force majeure clause or other significant terms. In many cases, the internet terms may be enforceable so long as the parties’ other communications provide adequate notice of those online terms.  Failure to heed the incorporated online terms may not be a defense.

If the parties have an agreement that incorporates specified terms and conditions of sale then it may have a force majeure clause.  This is more likely where the product involves goods or equipment to be custom manufactured, such as HVAC units. These may be in a printed form or posted online.  Here is an example clause from such a supplier’s internet set of Terms and Conditions of Sale: 

Force Majeure. Seller will not be responsible for any delay or failure in any performance due, without limitation, to acts of God, war, warlike conditions, blockade, embargoes, riots, governmental restriction, labor disturbances, unavailability of anticipated usual means of supplies, transportation or loading facilities, wrecks, epidemics, quarantine, fire, flood, earthquake, explosion, any unforeseen change in circumstances, or any other causes beyond its reasonable control.” 

This broad form clause would allocate the enumerated risks to the buyer, while seller claims excuse from further performance. This assumes seller can show one of those events caused the inability to perform.  The story may not end there.  The force majeure may excuse the supplier from having to produce or deliver the equipment, however, the supplier’s failure to provide timely notice or comply with some other contract procedure may still subject the supplier to a claim for damages as the buyer tries to obtain equipment from another source.  It will be important to read the whole of the purchase contract carefully and comply with what else it may require.  Circumstances may also dictate that some remedy short of full excuse from performance is appropriate.

The parties may find that they have a much narrower force majeure clause which does not, for example, mention epidemics. The actual cause of the disruption to the supply contract may not fall within the shorter list of causes.  The narrower clause may not excuse the supplier’s performance by its terms. The risk of the event presumptively falls to the supplier, however, there may be relief under a catch all phrase like “any other causes beyond its reasonable control” that some courts will read as broadening the scope of the clause.

If the catch all phrase is still too narrow to deal with the risk event the supplier may yet explore whether it can resort to the underlying “safety net” provisions in Article 2 of the UCC as an alternative and what relief the UCC can provide.   Some courts have viewed even a narrow force majeure clause as the controlling expression of the parties’ allocation of risk.  In those cases the existing clause may actually preclude looking for an alternative remedy.  Where it is not precluded, however, commercial impracticability under UCC section 2-615 would be the place to look. We address how that statute might provide relief in the next post