What’s the Deal… with Contracts? Part 3B (The body)

… And I’m back. This is part 3B of my 4-part post on contracts. The last post dealt with common clauses you can find in contracts, and here are some more. Read on and enjoy!

8. FORCE MAJEURE

Force majeure, French for “superior force,” refers to an unforeseen event or events that adversely affect the performance of a contract and sometimes allow a party to terminate it. This is because such an unforeseen event may make it impossible or very difficult for a party to perform the contract as originally intended. In general, courts tend to interpret these types of clauses very narrowly, so it’s typical for them to include a lot details regarding potential events. Common terms include “event,” “circumstance,” “beyond the control of,” “fault,” “negligence,” “caused by” and “affect/affected.”

“An event of force majeure is an event or circumstance which is beyond the control and without the fault or negligence of the party affected and which by the exercise of reasonable diligence the party affected was unable to prevent provided that event or circumstance is limited to the following: 

(a) riot, war, invasion, act of foreign enemies, hostilities (whether war be declared or not) acts of terrorism, civil war, rebellion, revolution, insurrection of military or usurped power, requisition or compulsory acquisition by any governmental or competent authority; 

(b) ionizing radiation or contamination, radio activity from any nuclear fuel or from any nuclear waste from the combustion of nuclear fuel, radio active toxic explosive or other hazardous properties of any explosive assembly or nuclear component; 

(c) pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds; 

(d) earthquakes, flood, fire or other physical natural disaster, but excluding weather conditions regardless of severity; and 

(e) strikes at national level or industrial disputes at a national level, or strike or industrial disputes by labor not employed by the affected party, its subcontractors or its suppliers and which affect an essential portion of the works but excluding any industrial dispute which is specific to the performance of the works or this contract.” 

 

9. ASSIGNMENT

Assignment clauses, sometimes called “No-Assignment” clauses, determine whether the parties to a contract can transfer (assign) rights or obligations to other parties. For example, a party to a contract may not want the other party to sub-contract the work (assignment of performance) involved in an agreement. If this were the case, the obligation to perform the work could not be assigned to another party. Or in some cases, consent must first be obtained, usually in writing. Common words appear in blue in the sample below:

Neither party may assign any of its rights under this agreement, either voluntarily or involuntarily, whether by merger, consolidation, dissolution, operation of law, or any other manner, except with the prior written consent of the other party. Neither party may delegate any performance under this agreement, except with the prior written consent of the other party. Any purported assignment of rights or delegation of performance in violation of this section is void.

10. NOTICE

A notice provision is very common and typically stipulates how (method of delivery), when (time limits) and under what circumstances notice is considered delivered and received. In the example below, one can also observe the reference to delivery and return receipt (acknowledgment of receipt), and registered or certified mail. These are very common because it is important that notice be sent and received between parties without getting lost.

Notices. All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, (b) on the date sent by [facsimile (with confirmation of transmission) or] electronic mail if sent during normal business hours of the recipient during a Business Day, and otherwise on the next Business Day, if sent after normal business hours of the recipient, provided that in the case of electronic mail, each notice or other communication shall be confirmed within one Business Day by dispatch of a copy of such notice pursuant to one of the other methods described herein, (c) if dispatched via a nationally recognized overnight courier service (delivery receipt requested) with charges paid by the dispatching party, on the later of (i) the first Business Day following the date of dispatch, or (ii) the scheduled date of delivery by such service, or (d) on the fifth Business Day following the date of mailing, if mailed by registered or certified mail, return receipt requested, postage prepaid to the party to receive such notice, at the following addresses, or such other address as a party may designate from time to time by notice in accordance with this Section.

 

11. GOVERNING LAW

The governing law provision indicates which laws will apply to the contract in the case of a legal dispute. This provision may sometimes be entitled “Governing Law and Jurisdiction” or “Governing Law, Jurisdiction and Venue.” The jurisdiction and venue refer to the where the dispute resolution shall actually take place. Logically, “governed,” “jurisdiction” and “venue” appears in these types of clauses; it is typical to find “construe” and “exclusive” as well, as in this example:

This Contract shall be governed by, and construed in accordance with, the laws of the State of XYZ. The Contractor agrees and consents to the exclusive jurisdiction of the courts of the State of XYZ for all purposes regarding this Contract and further agrees and consents that venue of any action brought hereunder shall be exclusively in the County of ZYX.

 

12. SEVERABILITY

The severability provision is like a shield. If it turns out a provision is not good in the eyes of the law, this provision can protect the rest of the provisions and ensure their survival. Let’s be frank, humans are prone to error and this means they may sometimes draft a provision that isn’t right. In this kind of clause, you will find the terms “invalid,” “illegal” and “unenforceable,” and sometimes their antonyms as well. We also often find “remain” and, logically, “provision(s)” in these kinds of clauses.

If any provision of this Agreement or any other Transaction Document is determined to be invalid, illegal or unenforceable, the remaining provisions of this Agreement and the other Transaction Documents shall remain in full force, if the essential terms and conditions of this Agreement and the other Transaction Documents for each party remain valid, binding and enforceable.

 

13. TERMINATION

What if the parties no longer want to have an agreement? They terminate it. The termination clause sets forth the parameters for doing so. “Notice” is a key concept for termination. If a wishes to terminate an agreement, the other party will want to know ahead of time to prevent any problems that the termination might cause.

Termination of Agreement. This Agreement may be terminated at any time and for any reason, with or without cause, by either party upon oral or written notice to the other party. The right of termination of this Agreement shall be absolute and neither XYZ nor Contractor shall incur any liability arising out of the termination, each of the parties mutually releasing each other from any claim of any nature resulting from or arising out of the termination. However, nothing in this paragraph shall be construed as a release of any obligation that shall have occurred prior to the effective date of the termination.

A variation of the termination clause is the “Termination for Breach” clause, which addresses the possibility that a party might not successfully perform the contract, in other words the party might breach it. Such a breach results in an “injured party.” If the “breaching party” doesn’t “cure” the breach in a timely manner, the injured party can terminate the agreement. In the example below, you can see that it refers to a “material” breach, i.e. a serious breach, not just a minor breach.

Termination for Material Breach. Each party may terminate this agreement with immediate effect by delivering notice of the termination to the other party, if:

(a) the other party fails to perform, has made or makes any inaccuracy in, or otherwise materially breaches, any of its obligations, covenants, or representations, and

(b) the failure, inaccuracy, or breach is not cured within 30 business days’ after the injured party delivers notice to the breaching party reasonably detailing the breach.

And that it’s for now. In post 4, I’ll cover the conclusion. I hope you enjoyed this post. See you next time!

JS