Economic Crisis as Force Majeure? (Plus a Note on Italics and Hyphens)

I noted with interest this article in Corporate Counsel by Kevin Jacobs and Benjamin Sweet, of the law firm Baker Botts. It’s entitled “‘Force Majeure’ in the Wake of the Financial Crisis.”

I recommend that you read the article, but here’s the gist of it:

Thus far, courts continue to resist applying this contractual provision to even the most severe economic events. Nevertheless, courts have indicated a willingness to consider recessions as force majeure events if the parties intended such events to be covered by their contracts.

And the authors have the following recommendation if you want to make economic conditions a basis for invoking a force majeure provision:

But parties should avoid using general terms when referring to economic conditions in force majeure clauses. That is, terms such as “change in economic conditions” or “economic downturn” should be avoided. Instead, parties should draft language that attempts to quantify an economic downturn, should the parties desire such downturns to excuse performance. For instance, parties could spell out that the contract remains valid if the price of performance drops but that performance is excused if an overall indicator of financial performance, such as unemployment rate or GDP, falls below some agreed level. Or, in the case of commodities contracts, parties could tie prices to a defined floor and ceiling, eliminating some, but not all, risk of price swings.

Here’s another idea: The article discusses a case in which the court declined to accept that inability to obtain financing due to the credit crisis triggered a force majeure provision. The party in question made that argument even though the force majeure provision didn’t explicitly cover general economic conditions. Because a primary goal of drafting is to avoid fights, this case and earlier cases like it suggest that it might be a good idea to make it clear that anything relating to general economic conditions doesn’t constitute a basis for force majeure. I’ve adjusted accordingly my own force majeure language (see this post).

For evidence that there are people out there who think that an economic crisis should constitute force majeure, see this 2008 New York Times article.

By the way, I’ve stopped using italics in the phrase “force majeure.” I’ve decided to treat it like “quid pro quo” or “pro rata”—in other words, it’s sufficiently ingrained that one doesn’t have to treat it as a foreign phrase. Furthermore, it would be too foppish, and too much of a nuisance, to state it in italics in a contract, and it would be oddly inconsistent to state it without italics in contracts but with italics elsewhere.

On the other hand, I haven’t started using a hyphen when “force majeure” is used as an adjective, even though a phrase should ordinarily be hyphenated if it’s used as an adjective. There’s an exception for phrasal adjectives in which the words generally have no English meaning when taken alone (for example, ex officio). Garner’s Dictionary of Legal Usage 675 (3d ed. 2011). That’s the case with “majeure,” and that’s enough for me to forgo the hyphen.

But I could be swayed.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.