Cover PageStudent Name Saranda Cunaku
Student Number 509815
Assignment Name Force Majeure and Hardship Clauses in United States of America and France
(excluding foontotes) 1530
TOC o “1-3” h z u Cover Page PAGEREF _Toc525988327 h 1I.General overview PAGEREF _Toc525988328 h 1II.Force Majeure in France and in the United States of America PAGEREF _Toc525988329 h 2III.Hardship in France and in the United States of America PAGEREF _Toc525988330 h 4IV.Conclusion PAGEREF _Toc525988331 h 6
Force Majeure and Hardship Clauses in United States of America and France
International commercial contractual relationships’ importance lays in the specification of the rights and obligations between the parties, so no issues or complications among parties occur at the later stages.
The highly controversial issue whether a party should be exempted from performance of the contract opposes the well-known principle of pacta sunt servanda, binding the parties to their undertaken obligations. Nonetheless, there have been cases where such exemption has taken place.
The relation between such concepts has been specifically addressed by general contract law principles such as in the United Nations Convention on Contracts for the International Sale of Goods (CISG), UNIDROIT Principles of International Commercial Contracts (UPICC), Principles of European Contract Law (PECL), etc.
However, differences in approaches towards non-performance of contract are particularly encountered among common and civil law systems. This paper will provide a comparison of this matter between the United States of America as a common law country and France as a civil law country. In more precise terms, the concepts of force majeure and hardship as exemption grounds for the non-performance of a contract will be examined in each of them.
Force Majeure in France and in the United States of AmericaFrench law represents the crib of force majeure, with its roots on the Roman doctrine of vis major. At the present time, the exemption from contractual obligations in basis of force majeure is regulated under Article 1218 of the French Code of Civil Procedure. The aforementioned provision states that “In contractual matters, there is force majeure where an event beyond the control of the debtor, which could not reasonably have been foreseen at the time of the conclusion of the contract and whose effects could not be avoided by appropriate measures, prevents performance of his obligation by the debtor”.
On the other hand, as noted by DiMatteo “Anything within the nonperforming party’s sphere of control or allocated risk cannot be a reason to grant an excuse”.
On the contrary in the United States of America the concept of force majeure and hardship is not recognized. In the American legal system, such doctrines are known with the term “commercial impracticability”. Such notion is established in Section 2- 615 (a) of the U.S. Uniform Commercial Code. The aforementioned section entails a threefold test which needs to be satisfied in order for the performance of contract to be considered impracticable. These tests include the manifestation of an impediment which makes impossible for a party to complete its contractual obligation, and for which at the time of the contracting the parties could not have made such impediment anticipation.
The non-requirement for non-performance of an impossible obligation was not firstly recognized in common law countries. As such, even now, the application of exemption on basis of force majeure is limited to only when and in those force majeure circumstances for which the parties agreed specifically to be considered.
When it comes to the strict and limited application of the provisions to excuse non-performance of contractual obligations in the Unites States, it is worth to take notice of the case between Raw Materials Inc. v Manfred Forberich GmbH ; Co. decided by the Northern District Court in 2004. The parties of this contract had agreed in the delivery of an amount of railroad rail. The seller had failed to complete such delivery due to severe winter weather conditions that had closed the port from which the delivery was to be made. The seller argued on basis of force majeure but in the absence of such clause in the contract, the Court by applying CISG for which the parties had agreed, concluded that such claim was not satisfied. Hence, the Court held that the seller was liable and evaluated that the weather circumstances claimed as force majeure by the seller were in fact ordinary.
Hardship in France and in the United States of AmericaHardship refers to those situations when the performance of the contract obligations for one of the parties becomes excessively onerous. Consequently, in such circumstances the latter party will have the right to request the renegotiation of the contract.
The main difference between the United States of America and France with regards to hardship is that while the French legal system recognizes such concept, the United States does not. As explained above, the American legal system refers to it with the term of commercial impracticability.
Likewise the doctrine of force majeure, in France, hardship is regulated under the French Code of Civil Procedure. Article 1195 of the French Code of Civil Procedure stipulates that “If a change of circumstances that was unforeseeable at the time of the conclusion of the contract renders performance excessively onerous for a party who had not accepted the risk of such a change, that party may ask the other contracting party to renegotiate the contract. The first party must continue to perform his obligations during renegotiation”. This view has been affirmed in 2004 by French case law, precisely the French Court of Appeal, in the case of Société Romay AG v. SARL Behr France. The circumstances of this case involved an agreement between the parties for the delivery of a specific amount of crankcases. Due to fluctuations in the market, the price of crankcases had dropped at fifty percent lower than the price which it was agreed for the purchase between the parties initially. Finding the CISG applicable, the Court concluded that the fluctuation of prices in the market was not a valid reason for exemption of competition of contractual obligations due to the fact that such risk should have been considered at the time of the contract conclusion.
Whereas, Section 2615 of the Uniform Commercial Code regulates commercial impracticability in the United States of America, it is worth to note that similarly to the French legal system, in the American legal system the fluctuation of market prices is not justified unless it is considered to be more than onerous. To illustrate, in the case of Maple Farms v. City School District of Elmira decided by the Supreme Court, it was held that the fact that there had been a 23% increase in the price of milk was not sufficient to make the contract impracticable. Moreover, the Supreme Court reasoned that the conditions under the Uniform Commercial Code had not been fulfilled as the increase of price did not constitute an unforeseen event as there had been an increase of 10% in the milk price in the previous year. Moreover, it was stated that the fluctuation of prices should have been taken into consideration by the supplier. Consequently; the Court found no basis for exemption for the non-performance of the contract.
In addition, Section 2615 (b) of the Uniform Commercial Code goes a step further and it provides for parties’ potential duties in those situations when the capability to perform is not fully impeded. As such, the Section provides for allocations which can be done in different ways, i.e. in pro rata basis, future contractual relationships with steady clienteles or in any other way which would be deemed to ensure fairness.
The occurrence of unanticipated circumstances during a contractual relationship may influence the path towards the success or the failure of such transaction. In cases of unforeseen and outside the control of parties’ circumstances, courts and tribunals may excuse a party for the non-performance of contractual obligations.
Even though such exemptions go against the principle of sanctity of contracts or pacta sunt servanda, they do provide for a ‘shelter’ of fairness for the party having it impossible to perform due to impossibility or in cases when the performance of contract is excessively onerous. When impossibility to perform is established, courts and tribunals will release the disadvantageous party from the undertaken contractual obligations, whereas in cases of hardship when the fulfillment of obligation is extremely difficult to complete, renegotiation of the contract may take place.
Since different approaches are encountered in common law and civil law countries’, the inclusion of force majeure and hardship clauses in the contract provides for the needed space for the courts and tribunals to evaluate the circumstances. If not done so, then it is probable, especially for courts in common law jurisdictions, to be hesitant to apply such concepts.
The burden of proof for unforeseen circumstances falls within the party that makes such claim. Generally, in the United States of America and France the threshold to prove such circumstances will be high. Based on the case law provided in this text it can be observed that exemption based on such circumstances will be in special circumstances. Hence, no release from contractual obligations will occur when such situation or risk could have been taken into account at the time the parties concluded a contract. Similarly, courts in both countries will not deem as exceptional circumstances price fluctuations in market. In this regard, the United States of America case law provides for the fluctuations prices to be severe or otherwise such unforeseen events will not be justified at all.