Cover PageStudent Name Saranda Cunaku
Student Number 509815
Assignment Name Force Majeure and Hardship Clauses in United States of America and France
(excluding foontotes) 1533Contents
TOC o “1-3” h z u Cover Page PAGEREF _Toc526012611 h 1I.General overview PAGEREF _Toc526012612 h 1II.Force Majeure in France and in the United States of America PAGEREF _Toc526012613 h 2III.Hardship in France and in the United States of America PAGEREF _Toc526012614 h 3IV.Conclusion PAGEREF _Toc526012615 h 6Bibliography PAGEREF _Toc526012616 h 7
Force Majeure and Hardship Clauses in United States of America and France
Differences and similarities
General overviewInternational commercial contractual relationships’ significance lays in the arrangement 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-established principle of pacta sunt servanda or the sanctity of contracts, binding the parties to the obligations they have undertaken to perform. Nevertheless, 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 exemptions for the non-performance of contracts are particularly encountered among common law and civil law systems. This paper will provide for the similarities and differences in 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 AmericaThe French legal system represents the crib of force majeure, with its deep roots on the Roman doctrine of vis major. At the present time, the exemption for non-performance of contractual obligations on 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 as impracticable. For the three fold test to be applicable it is provided that a manifestation of an impediment which makes impossible for a party to complete its contractual obligation occurs, for which at the time of the contracting the parties could not have made such possible impediment anticipation.
The non-requirement for non-performance of an impossible obligation was not firstly recognized in common law jurisdictions. As such, even now, the application of exemption on basis of force majeure situations is strictly 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 United States of America, it is worth to take notice of the American case law. In the United States, where there is a lack of a force majeure clause between the parties into the contract, in international transactions, if agreed by the contractual parties beforehand, the courts will apply the CISG. However, the threshold to establish that force majeure is present is quite great. As such, even severe winter weather conditions, for instance freezing, that will not allow for a party to fulfill its contractual obligation, will often fail to establish a force majeure situation in order to release a party form the fulfillment of its contractual obligations.
Hardship in France and in the United States of AmericaHardship refers to those particular situations when the performance of the contract obligations for one of the parties becomes excessively burdensome. 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 such concept with the term of commercial impracticability.
Likewise the doctrine of force majeure, in France, hardship is also 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”.
The aforementioned legal provision has been affirmed by French case law. Hence, in France, the price fluctuations in the market will not be considered as potential grounds for exemption of non-performance of a contractual obligation even if the price of goods drops at fifty percent lower than the price which it was agreed for the purchase between the parties initially. As such, Courts will rule that the fluctuation of prices in the market will not be considered a valid reason for exemption of completion of contractual obligations due to the fact that such risk should be taken into consideration 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, courts in America will not release a party from its contractual obligations even if there has been a twenty-three percent increase in the price of goods. As such, for a court to decide that there has been an unforeseen event within the parameters of price increases or market fluctuations there should not have been such price fluctuations in the recent past. Moreover, it is considered that the fluctuation of prices is an issue which should be always taken into consideration by the contractual parties at the time of the contract conclusion. Consequently; if such conditions are not fulfilled exemption for nonperformance of the contract will not be provided.
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, prospect contractual dealings with steady clienteles or in any other way which would be deemed to guarantee fairness.
The occurrence of unanticipated circumstances during a contractual relationship may influence the path towards the success or the failure of such commercial transaction. In cases of the 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 indeed 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 firmly 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 in France the threshold to prove such circumstances will be relatively 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 their contract. Similarly, courts in both countries will not deem as exceptional unforeseen circumstances price fluctuations in market. In this regard, the United States of America case law provides for the fluctuations prices to be more than severe or otherwise such unforeseen events will not be justified for grounds of exemption at all.
United Nations Convention on Contracts for the International Sale of Goods (1980) CISG
Unidroit Principles of International Commercial Contracts 2016
The Principles of European Contract Law 2002
French Code of Civil Procedure
Uniform Commercial Code (USA) 2002
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