Structuring Termination Clauses in Commercial Contracts: Force Majeure, Impossibility, Frustration of Purpose, Damages

Recording of a 90-minute CLE webinar with Q&A

Conducted on Thursday, October 15, 2020

Recorded event now available

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Program Materials

This CLE webinar will guide business counsel through legal concerns in negotiating termination and suspension provisions contained in commercial contracts drafted in a pre-pandemic world, as well as the considerations for such provisions in the post-pandemic economic environment. Other considerations and means of limiting liability and damages will also be discussed.

Description

The global pandemic has destabilized all areas of commercial contracting and the supply chain. Counsel must examine default and termination provisions of ongoing and future agreements and how to calculate damages for those contracts. Force majeure provisions in commercial contracts are now under the microscope, although the clauses were most likely given little thought at the time of drafting.

If a contract does not include a force majeure clause, a party may raise the defense of impossibility or impracticality. Under the Restatement (Second) of Contracts 261, a party can discharge a contractual obligation when "performance is made impracticable without his fault by the occurrence ... or the non-occurrence of [an event] which was a basic assumption on which the contract was made." Experience from the pandemic may allow counsel to anticipate what is possible and practicable in ongoing and future agreements.

Many businesses, particularly if thinly capitalized, are experiencing cash flow challenges. Agreements frequently include provisions that a default and termination occurs when one party files bankruptcy. Parties should carefully weigh whether to exercise early stage insolvency-related termination rights if the counter-party experiences short-term cash flow problems. Entering contracts with new suppliers who are on healthier financial footing may prove more difficult, time-consuming, and costly.

The underlying economics of a fixed-price agreement made before the pandemic are fundamentally different now if change-in-law relief is not available and force majeure relief does not cover a party's COVID19-related losses and increased expenses. Parties may instead prefer to seek equitable relief to mitigate losses, such as extending the time for performance or orders of restitution.

Listen as our expert panel provides practical strategies for drafting and negotiating termination provisions of future commercial agreements to ensure clarity in issues of force majeure, the impossibility of performance, and damages to mitigate risks.

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Outline

  1. Termination provisions generally
    1. Triggering events
    2. Default provisions
  2. Force majeure
  3. Impossibility/frustration of purpose
  4. Insolvency
  5. Damages
    1. Increased costs
    2. Equitable relief
    3. Other damages

Benefits

The panel will review these and other relevant topics:

  • What triggering events and provisions should an attorney consider when drafting a commercial agreement?
  • How can counsel tailor force majeure provisions in agreements during COVID-19?
  • When does impossibility or frustration of purpose arise in the performance of a commercial agreement?
  • How can damages be assessed in termination provisions to include the added costs of performance due to delays?
  • When and how should parties seek equitable relief in commercial agreements?

Faculty

Dummit, Darren
Darren W. Dummit
Counsel
Seyfarth Shaw

Mr. Dummit's practice focuses on the defense of claims in a wide variety of areas, including commercial, real...  |  Read More

Milligan, Robert
Robert B. Milligan
Partner
Seyfarth Shaw

Mr. Milligan Co-Chairs the firm's Trade Secrets, Computer Fraud & Noncompetes Practice Group. His practice...  |  Read More

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