In a previous post I introduced the concept of Force Majeure and how those clauses act to keep parties to a contract from being injured due to a breach caused by something outside their control. They’re easy enough to understand intellectually, but how often does an act of God really cause a breach of contract? They aren’t really necessary in real life, are they?

Turns out they are.

When the roof of the Metrodome in Minneapolis collapsed on December 12, 2010 due to a big snow storm, people thought that it would be repaired pretty shortly thereafter and everyone could get back to using it. Unfortunately, the latest reports are that it won’t be fully repaired until sometime in March. In the meantime, any group that had been planning to use it for an event is out in the cold.

Case in point: the Twin Cities has one of the largest Hmong populations in the United States. A Hmong American New Year celebration had been scheduled to take place in the Metrodome, and was expected to draw 40,000 people. Due to the roof collapse, though, the event had to be cancelled, at a loss of $35,000 “in advertising and nonrefundable deposits.”

I have not seen any of the vendor contracts for the Hmong American New Year, but this is precisely the situation in which force majeure clauses are important. If the organizers of the celebration had been able to negotiate force majeure clauses for the deposits, they could have relied on those to return those deposits rather than losing them.

This sort of situation affects all sorts of parties, though, including the operators of the Metrodome, the vendors hired to provide goods or services, and the companies who provide inventory to the vendors, among others. So hopefully they all had force majeure clauses in place to protect them. Without them, they could all still be bound to perform their contractual duties and be out a lot of money, effort, or both.

(photo: http://www.flickr.com/photos/gsfc)

A recent story by The Onion outlined a fantastically over-the-top example of a breach of contract remedy known as “specific performance.” The story–which is part of their News in Brief series–is reproduced in its entirety here:

Decades after the failed Apollo 13 moon mission, NASA officials announced on Monday plans to launch former astronaut Jim Lovell back into space to complete the task he was contracted to perform 40 years ago. “Yes, he has been retired for some time now, and yes, he seemed quite surprised when we visited him at his home, but Capt. Lovell was hired to do a job, and we intend to hold him to it,” said NASA spokesperson Nancy Paulson, who explained that the 82-year-old would be put through a series of g-force and physical stress tests in preparation for his relaunch. “After all, we did pay him to land on the moon.” According to Paulson, the new moon mission will investigate a number of previously unobserved phenomena, including the effects of sending a very elderly man into space to die.

There are generally two ways to address breaches of contracts: (1) specific performance, and (2) damages. Generally people sue on and receive damages because specific performance is too difficult to enforce. However, if the court orders specific performance, then the party that breached the contract is required to actually perform their end of the deal, rather than just paying for what it costs the other party to make up for the breach.

The article from The Onion is funny because NASA is requiring specific performance for the contract of the astronaut (assuming the contract actually required him to land on the moon). In any other situation like this, where specific performance is infeasible, the court would order monetary damages rather than specific performance. But that’s what makes the article funny.

(Photo by dbking)

Recently I stumbled upon a post noting that Contracts may get in the  way of doing good business, sustaining relationships, and building trust.

The author of the original article suggests that insisting everything is put in writing upfront implies that the parties don’t trust each other, which puts people in a bad place to start their relationships and negotiations.

Indeed, much business that is conducted relies on a good relationship between the contracting parties, and trust and the ability to communicate freely will only help the relationship work. Contrary to what the author of the article promotes, though, I believe that having a contract (or understanding that a contract will be written) upfront frees up the parties and allows them to develop the relationship without concern for whether each of their statements will be considered part of the agreement(s) they make.

Freedom of communication is a critical part of any relationship–business or personal–and if any statement could be construed as potentially part of the agreement because there is no written contract, that communication will be stilted. Knowing that the agreement will be written down and agreed to by the parties allows everyone to communicate freely both before and after the execution of the contract, and build solid relationship.