Will this force majeure clause excuse our performance in North Carolina?
No North Carolina opinion construing a force majeure clause was found, so what follows is the background doctrine such a clause is drafted against and not an answer for the clause itself. In Brenner the Supreme Court of North Carolina stated that 'impossibility of performance is recognized in this jurisdiction as excusing a party from performing under an executory contract if the subject matter of the contract is destroyed without fault of the party seeking to be excused from performance' (a narrow rule keyed to destruction of the subject matter, not to hardship), and held it had 'no bearing' on the case before it because the promised performance remained possible. The same opinion sets out two limits on frustration of purpose, stated on the authority of the treatise it cites and then applied as the ground of decision: 'if the frustrating event was reasonably foreseeable, the doctrine of frustration is not a defense', and 'if the parties have contracted in reference to the allocation of the risk involved in the frustrating event, they may not invoke the doctrine of frustration to escape their obligations'. The Court applied the second to a tuition term reading 'payable in advance of the first day of school, no portion refundable' and held that the term allocated to the payor the risk that the child would not attend and so prevented the doctrine. For a sale of goods there is a statutory excuse with its own conditions: N.C.G.S. § 25-2-615 opens 'Except so far as a seller may have assumed a greater obligation and subject to the preceding section [G.S. 25-2-614] on substituted performance', and subdivision (1) then provides that delay in delivery or non-delivery by a seller who complies with subdivisions (2) and (3) is not a breach of the seller's duty if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made, or by good-faith compliance with any applicable foreign or domestic governmental regulation or order whether or not it later proves invalid.
The trap
The § 25-2-615 excuse is conditional on two duties the clause usually omits. Where the contingency affects only part of the seller's capacity, subdivision (2) requires the seller to ALLOCATE production and deliveries among its customers, and it may so allocate 'in any manner which is fair and reasonable'; subdivision (3) requires the seller to notify the buyer seasonably of the delay or non-delivery and, where allocation is required, of the buyer's estimated quota. A seller that does neither is outside the section on its own words, because subdivision (1) excuses only a seller 'who complies with subdivisions (2) and (3)'. The section also runs in one direction only (it excuses a SELLER), and it yields to a greater obligation the seller has assumed, which is what a broadly drafted force-majeure clause may be. Then the harder point, which cuts the other way: Brenner holds that where the parties have contracted about the allocation of the risk of the frustrating event they may not invoke frustration of purpose, and it enforced a one-line 'no portion refundable' term as exactly that allocation. The clause you draft is therefore as likely to be read as the parties' allocation of the risk of the event as it is to be read as an excuse from it, and on Brenner's reasoning a clause that names an event and states its consequence may be read as having allocated that risk. Brenner also held that hardship short of destruction did not excuse: the payor 'did not receive the full consideration contemplated by the contract' yet received enough to defeat the doctrine, and 'there was no substantial destruction of the value of the contract'. Two reservations remain. Brenner reached frustration of purpose by agreeing with a Court of Appeals dissent's general discussion of the law and then applying the doctrine's own limits to reject it on the facts; it did not squarely announce frustration of purpose as a North Carolina doctrine, and its long exposition of the doctrine is quoted from a legal encyclopaedia, not worked out by the Court. And whether a North Carolina court will read a force majeure clause to reach an event the clause does not name was not answered by anything read here.
10 authorities
The words that state the rule
Impossibility of performance is recognized in this jurisdiction as excusing a party from performing under an executory contract if the subject matter of the contract is destroyed without fault of the party seeking to be excused from performance.
The words that state the rule
Plaintiff’s former wife’s refusal to send the child to defendant school did not destroy the subject matter of the contract; it was still possible for the child to attend the school. The doctrine of impossibility of performance clearly has no bearing on this case.
- statuteN.C.G.S. § 25-2-615enactment date not established
The words that state the rule
Except so far as a seller may have assumed a greater obligation and subject to the preceding section [G.S. 25-2-614] on substituted performance: (1) Delay in delivery or nondelivery in whole or in part by a seller who complies with subdivisions (2) and (3) [of this section] is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
The words that state the rule
While we agree with Judge Martin’s general discussion of the law concerning frustration of purpose, we hold that the doctrine does not apply to bring about a recission under the facts of this case.
The words that state the rule
If the frustrating event was reasonably foreseeable, the doctrine of frustration is not a defense. In addition, if the parties have contracted in reference to the allocation of the risk involved in the frustrating event, they may not invoke the doctrine of frustration to escape their obligations.
The words that state the rule
Therefore, although plaintiff did not receive the full consideration contemplated by the contract, he received consideration sufficient to avoid the application of the doctrine of frustration of purpose. There was no substantial destruction of the value of the contract.
The words that state the rule
Furthermore, we find the doctrine of frustration of purpose inapplicable on an additional basis. Although the parties could not have been expected to forsee the exact actions of plaintiffs former wife in refusing to send the child to defendant school, the possibility that the child might not attend was foreseeable and appears expressly provided for in the contract. The contract states that tuition is “payable in advance of the first day of school, no portion refundable.” This provision allocates to plaintiff the risk that the child will not attend, and prevents the application of the doctrine of frustration of purpose.
The words that state the rule
For the reasons stated, we reverse the decision of the Court of Appeals and remand to that court with instructions to remand to the District Court, Guilford County, for a New trial.
- statuteN.C.G.S. § 25-2-615enactment date not established
The words that state the rule
(2) Where the causes mentioned in subdivision (1) [of this section] affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
- statuteN.C.G.S. § 25-2-615enactment date not established
The words that state the rule
(3) The seller must notify the buyer seasonably that there will be delay or nondelivery and, when allocation is required under subdivision (2) [of this section], of the estimated quota thus made available for the buyer.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.