As pandemic restrictions ease, in-person events and social gatherings are on the rebound. It’s a dramatic contrast with last summer, when venues were closing and customers were scrambling to postpone events or seek deposit refunds. Lessons learned then about the importance of contract language are no less important now, if you’re planning a big get-together. Here are three contract provisions that you need to understand before you sign on the dotted line:
1. Force Majeure
A “force majeure” provision is a clause in a contract that defines a party’s liability when an extraordinary event beyond either party’s control prevents a party from performing its contractual duties. The events, defined within the contract, typically include matters such as war, natural disasters, or “acts of God.”
Before the COVID-19 pandemic and related government-mandated closures, few parties included pandemics as a force majeure event. This could change in the future, given recent experience, but its absence in contracts signed prior to the pandemic has been a source of contention. When a specific extraordinary event is not listed in a contract, the legal analysis of whether a contract has been violated depends, first, on whether the event that occurred was unforeseeable, unanticipated, or uncontrollable, and second, on whether a party’s inability to meet the terms of the contract was truly outside of the party’s control and could not be mitigated. [Harper v. N. Lancaster, LLC, 95 Mass. App. Ct. 1119 (2019)].
Generally, force majeure provisions will suspend the contract until the force majeure event is over, but will not terminate the contract. As a result, a party will not be held liable for its failure to perform on the contractually specified date but must perform within a specified time thereafter. As anyone who tried to plan a wedding in the past year can attest, however, this can become an issue if the venue is unavailable for rescheduling for an unknown period.
In some cases, the force majeure clause in the contract will also provide that the contract is terminated because of a force majeure event.
Until this past year, all of this may have seemed like a lot of legalese, but it’s essential to understand the details. The force majeure clause should benefit both parties, covering liability for events that are outside of either party’s control. Be sure to read the fine print.
2. Mandatory Arbitration
Let’s say you chose a wedding date, signed a contract for your wedding venue, and paid your deposit, but were unable to hold the event because of the pandemic. After several months of failed postponements, you decide to marry in a small ceremony and cancel the venue contract. The venue won’t give you a refund, per the terms of the contract. What can you do? Under Massachusetts as well as federal law, parties to an agreement can agree in advance to arbitrate claims and disputes instead of going to court. [Warfield v. Beth Israel Deaconess Med. Center, Inc., 454 Mass. 390 (2009)].
An arbitration proceeding is similar to a courtroom trial. Both parties present their case to a third party (arbitrator), who has the authority to make a decision on the issue. A contract that includes an arbitration provision limits a party’s rights to file their claim in court. Arbitration is usually faster and cheaper than a court case, but the losing party’s right to appeal the decision is severely limited.
When signing a contract, be sure to review any arbitration provisions. Some preprinted contracts include unfair provisions regarding the place of arbitration (a different state, for example). Read the fine print.
Some contracts specifically limit the damages that are available for breach of the contract. To return to our wedding example, a common item of contention is a “non-refundable” deposit. Whenever a deposit is required, the payer should carefully read the contract to learn whether (or under what circumstances) the deposit is refundable. As mentioned above, in the case of uncontrollable events, one party may try to invoke the force majeure language to claim a refund, while the other may cite the same provisions to deny it.
Damage provisions in a contract may also define a cap or floor, meaning that a party will be held liable up to a certain amount (cap) or not liable unless a threshold amount is claimed (floor). These damages provisions can work both ways, meaning either party can benefit, depending on who is the responsible party and how much compensation is involved.
Contracts are often complex legal documents that contain terms and provisions with a wide range of consequences. Especially when planning an important event, before you sign, take the time to read the entire agreement and be certain that you fully understand your responsibilities and exposure. Should you have any questions about a contract, it’s well worth the effort to seek legal advice or guidance—so you can avoid losing time and money if things don’t go as planned.
Image: Nils Stahl