Lecture 8: Post-Contractual Obligations

Question 1

Define ‘Force Majeure’.

Answer 1

A clause in a contract that frees parties from liability or obligation when an extraordinary event (e.g., natural disasters, war, pandemics) beyond their control prevents contract performance.

Mainly needed in common law countries.

Legal solutions for events in which the performance of a contractual obligation becomes either:

1. impossible for at least one party
2. economically unbearable for at least one party

Question 2

Why is a Force Majeure clause especially important in common law systems?

Answer 2

Because common law does not recognize Force Majeure as a general legal principle. Without a specific clause, parties must rely on the narrow doctrine of frustration, which courts apply restrictively (only at equity). Therefore, Force Majeure must be explicitly included in the contract to be enforceable.

Question 3

What are the three prerequisites for invoking Force Majeure?

Answer 3

1. Impossibility of performance (physical, legal, economic, or personal)
2. Unforeseeability of the event
3. No fault in prevention by the affected party

Question 4

Define ‘Impossibility’ related to Force Majeure.

Answer 4

The inability to perform contractual obligations due to events beyond control. It can be:

1. Physical impossibility: Performance of obligation is impossible for obligor as well as for everybody else (e.g., destruction of goods).
2. Legal impossibility: Performance of obligation is not physically impossible but legal provisions don’t allow it (e.g., government bans).
3. Economic impossibility: Performance of obligation not physically impossible but economically unbearable for obligor (e.g., extreme cost increases).
4. Personal impossibility: Performance of obligation not physically impossible but personally either impossible or unbearable for obligor (e.g., illness preventing performance of personal services).

Question 5

Define ‘Unforeseeability’ related to Force Majeure.

Answer 5

The event could not reasonably have been foreseen at the time of contract formation.

If the event was predictable or preventable, Force Majeure cannot be invoked.

Question 6

Define ‘No fault in prevention (externality)’ related to Force Majeure.

Answer 6

The affected party did not cause or fail to prevent the event. The event must be external and beyond the party’s control.

If the party could have avoided it, Force Majeure does not apply.

Question 7

What remedies are available under Force Majeure when the event was unforeseeable and the affected party is not at fault?

Answer 7

If a Force Majeure event is unforeseeable and the party is not at fault (responsible), remedies under national law and/or by the contract may include:

1. Termination of the contract
2. Re-negotiation of the contract
3. Distribution of the costs of loss or termination

Question 8

Define ‘Hardship’.

Answer 8

A situation where a party to a contract faces excessive difficulty or an unfair burden due to unforeseen changes in circumstances, making it excessively onerous to perform their obligations.

This may lead to a request for contract renegotiation or termination.

Question 9

Why must Hardship be explicitly included in contracts under common law?

Answer 9

Because common law does not recognize Hardship as a general legal principle. Without a specific clause, parties cannot demand renegotiation or adaptation due to changed circumstances. Therefore, Hardship must be explicitly included in the contract to be enforceable.

Question 10

What are the three prerequisites for invoking Hardship?

Answer 10

1. Substantial burden on one party, making performance unreasonably difficult (e.g., extreme price or currency changes).
2. Party would not have agreed: Unreasonableness of expecting that party to continue under the original terms
3. Significant change in circumstances after the contract was formed

Question 11

Define ‘Substantial burden’ related to Hardship.

Answer 11

A severe and excessive burden caused by changed circumstances must fall on one party. This burden must go beyond normal business risk, such as large, unforeseeable increases in costs, currency shifts, or market disruptions.

Question 12

Define ‘Part would not have agreed/Unreasonableness’ related to Hardship.

Answer 12

It means that, had the changed circumstances been known, the affected party would not have accepted the contract or would have agreed on different terms. Continuing under the original contract would now be unreasonable.

Question 13

Define ‘Change in circumstances’ related to Hardship.

Answer 13

It refers to significant, unforeseeable changes that occur after the contract was formed and are beyond the affected party’s control or risk. These changes disrupt the contract’s balance and justify adaptation or renegotiation.

Question 14

What remedies are available under Hardship?

Answer 14

1. Renegotiation of the contract terms to restore balance
2. Termination of the contract if no agreement is reached

Question 15

Which countries recognize the legal concept of Hardship and which do not, and why?

Answer 15

Recognize Hardship:

• UNIDROIT – Soft law instrument that explicitly allows hardship clauses.
• Germany – Recognized under §313 BGB in national law.
• China – National law includes provisions allowing contract adaptation for hardship.

Do not recognize Hardship:

• CISG, France, Spain, U.S., England – These legal systems (especially common law ones like the U.S. and England) do not recognize hardship unless explicitly stated in the contract.

Instead, they may use limited doctrines like “frustration,” but courts apply them very restrictively.

Question 16

When can a party invoke a Hardship clause under German law (§313 BGB)?

Answer 16

A party can invoke §313 BGB if a significant change in circumstances has occurred that would have affected the original contract terms, and it is unreasonable to uphold the contract without changes.

Question 17

Define and distinguish Force Majeure and Hardship.

Answer 17

Force Majeure refers to events making performance impossible (e.g., natural disaster), while Hardship refers to performance becoming extremely difficult, burdensome or unbearable economic consequences (e.g., major price shifts).

Question 18

What is the difference between Hardship and economic impossibility under Force Majeure?

Answer 18

Economic impossibility (Force Majeure) makes performance unbearable due to extreme cost but is treated as impossibility—performance is excused.

Hardship means performance is still possible but causes excessive burden, leading to renegotiation, not automatic termination.

Question 19

How do common law systems handle situations of Hardship or Force Majeure if not contractually defined?

Answer 19

They rely on the doctrine of frustration, but only in extreme cases where performance is truly impossible. Courts apply it very restrictively, and it usually leads to full termination of the contract without renegotiation. Therefore, it is important to include ‘Force Majeure’ and/or ‘Hardship’ clauses in a contract under common law.

Question 20

What is the doctrine of frustration in common law, and when does it apply?

Answer 20

Frustration is a legal remedy in common law used when performance becomes impossible due to events like destruction of subject matter, death, or frustration of purpose. It leads to immediate termination and release from obligations. Courts apply it only if the change affects the core of the contract and no alternative solution exists.

Question 21

What key elements should a Force Majeure clause include?

Answer 21

It should define covered events, suspend performance duties, exclude liability for non-performance, and outline duties of each party in case of a Force Majeure event.

Events may include: Natural disasters, wars, labor disturbances, sabotage, government actions, utility failures, and acts of God, among others.

Question 22

How do civil law and common law systems differ in handling post-contractual obligations?

Answer 22

Civil law assumes secondary operative provisions (obligations like liability) and framework provisions (e.g. confidentiality and warranty) survive contract termination.

Common law assumes automatic termination upon successful performance of primary obligation unless otherwise agreed upon and continued via a Survival Clause.

Question 23

Explain the purpose and legal effect of a Survival Clause.

Answer 23

A Survival Clause specifies which contract obligations continue after termination, such as confidentiality or warranty obligations.

Question 24

What is the purpose of post-contractual warranty obligations?

Answer 24

They ensure the buyer can still claim for defects discovered after performance, as the seller’s quality assurances may survive contract termination.

Question 25

What is the role of confidentiality clauses after contract termination?

Answer 25

They protect sensitive information disclosed during the contract, often extended through a survival clause even after the contract ends.

Question 26

What does a non-use clause prevent after contract termination?

Answer 26

It prevents the receiving party from using confidential information beyond the agreement’s scope, typically enforced through a survival clause.

Question 27

What is the purpose of sample return or destruction clauses?

Answer 27

They require the return or destruction of confidential materials after the contract ends to ensure proper handling of sensitive information.

Question 28

What do non-competition clauses regulate after contract termination?

Answer 28

They restrict a party from competing or working for a competitor after the contract ends, usually limited in scope, time, and geography, and often require compensation.

Question 29

What limits are commonly applied to non-competition clauses?

Answer 29

They are typically limited to a specific activity, time period, and territory, and must include compensation due to strict competition law and constitutional rights.

Question 30

Define some miscellaneous clauses.

Answer 30

These include various general clauses in a contract, such as governing law, dispute resolution, waiver clauses, and others, which address various administrative and legal issues.

Question 31

What is the purpose of a No Partnership or Agency Clause?

Answer 31

It ensures the agreement does not create a legal partnership or agency relationship, preventing either party from binding or acting on behalf of the other.

Question 32

What is the function of an Interpretation Clause?

Answer 32

It sets rules for interpreting contract terms, ensuring clarity and consistency in understanding language, definitions, and references throughout the agreement.

Question 33

What does a Dual Language Clause do in a contract?

Answer 33

It ensures that all language versions of the contract have equal legal effect and may specify which version prevails in case of conflict, helping avoid interpretation issues.

Question 34

What is included in a General Provisions Clause?

Answer 34

It confirms the agreement is final, can only be changed in writing, may be signed in originals, requires written waivers, and states that section headings don’t affect interpretation.