Excluding from a “Force Majeure” Provision Inability to Comply with a Payment Obligation

[Updated January 9, 2012, to reflect a change to my February 2011 post prompted by Vance Koven’s comment to this post.]

In this February 2011 post I offered my version of a force-majeure provision. It included the following:

For purposes of this agreement, “Force Majeure Event” means, with respect to a party, any event or circumstance, regardless of whether it was foreseeable, that was not caused by that party and that prevents a party from complying with any of its obligations under this agreement [(other than an obligation to pay money)], on condition that that party that uses reasonable efforts to do so … .

But an inability to make a contract payment could have two very different causes. First, you might not have the money. Or second, you might have the money but might not have any means of paying it—to use an example offered by reader Chris Lemens in this comment, the FDIC shuts down your bank the day you’re due to wire money.

I suggest that rather than simply excluding from the definition of “Force Majeure Event” an inability to comply with an obligation to pay money, it would be clearer to state that you’re excluding the first basis for inability or both the first and second basis, whichever arrangement seems more appropriate.

Excluding the first basis makes sense: What if Acme’s best customer were wiped out by an earthquake, leaving a substantial Acme invoice unpaid, and as a result Acme were unable to make a contract payment to Widgetco? I can understand why Widgetco would prefer to exclude that sort of circumstance from the definition of “Force Majeure Event.”

On the other hand, if Acme were unable to pay due to Chris’s FDIC scenario, that’s less remote. Widgetco might well be more willing to have that scenario fall within the definition of “Force Majeure Event.” A court might well conclude that it does, unless it’s excluded.

Here’s my initial attempt to revise the definition of “Force Majeure Event” to exclude the first basis of inability:

For purposes of this agreement, “Force Majeure Event” means, with respect to a party, any event or circumstance, regardless of whether it was foreseeable, that was not caused by that party and that prevents a party from complying with any of its obligations under this agreement [(other than an event or circumstance that results in a party’s not having sufficient funds to comply with an obligation to pay money)], on condition that that party uses reasonable efforts to do so … .

What do you think?

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.