Forrest Gump and Lieutenant Dan committed Bubba Gump Shrimp Company to deliver 10,000 pounds of shrimp monthly to Wok Ann Chu-gumm Seafood Restaurants across the south. Unfortunately, the aftermath of a recent oil spill is likely to shut down Bubba Gump Shrimp boats all along the Texas Gulf coast. Forrest and Dan are worried they can’t deliver enough shrimp to cover their contract with Wok Ann Chu-gumm. The price of brown shrimp is already up 50% from the week before the oil spill. It’s time to fish or cut bait. Can Forrest and Dan just tell Wok they are terminating the agreement because it will now be impossible for them to deliver the shrimp?
It depends. The $25 legal (Latin) phrase for impossibility of performance is force majeure. Although some states recognize certain kinds of unforeseen events as excusing nonperformance of agreements even if there is nothing in writing, Texas courts require any forgivable events to be spelled out in the contract, i.e., what happens if the event is man-made (sabotage), natural occurrences or other “acts of God” (hurricanes, floods, tornadoes), market conditions (inability to obtain goods), political or governmental (changes in law or ruling regimes) or societal (riots, terrorism, labor strikes). So, if Forrest and Dan do not have a contract with Wok Ann Chu-gumm, they have to deliver – even if it means buying shrimp from other sources at higher prices to cover their shortfall.
Tilting the Scales in Your Favor.
If your company might face “acts of God” affecting timely delivery as promised, your customer contracts may need tweaking. First, whose law controls? If it’s Texas law, your written agreement must clearly spell out those circumstances that might cause an unexpected delay or impossibility of performance. Without such an agreement, Bubba Gump Shrimp Company has an absolute obligation to perform in full and on time, probably meaning that it must purchase shrimp from others and at higher prices. Other questions like duty to mitigate, what language in the contract takes priority, notice, type of relief, and even insurance that might cover such a loss, are also issues for you to consider.
Unambiguous language in your favor is critical. For example, in the right context a phrase “reasonably beyond its control” might take away everything that you think you bargained for. So, just like shrimp, whether you “… barbecue it, boil it, broil it, bake it, saute it. Dey’s uh, shrimp-kabobs, shrimp creole, shrimp gumbo. Pan fried, deep fried, stir-fried. There’s pineapple shrimp, lemon shrimp, coconut shrimp, pepper shrimp, shrimp soup, shrimp stew, shrimp salad, shrimp and potatoes, shrimp burger, shrimp sandwich,” make sure that your agreement is both to your liking, and that it reasonably covers those “impossible to perform” circumstances that are out of your control. “That- that’s about it.”