Force Majeure Probably Doesn’t Permit Smoke Taint Rejection

Stoel Rives - California Environmental Law
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Stoel Rives - California Environmental Law

A force majeure clause in a contract permits the suspension, or in some cases, the termination, of performance by a party to the contract upon the occurrence of a force majeure event. Traditionally, a force majeure event is a matter outside of the control of the obligated party that makes it impossible or impracticable for that party to perform one or more of its obligations under the contract. For example, depending on the specific language of the force majeure provision, a labor strike might excuse a party from performing its obligation to manufacture and deliver goods purchased by a buyer.

A typical force majeure provision from a grape purchase agreement is set forth below:

Force Majeure.    Neither Seller nor Buyer shall be liable to the other party, nor be deemed to have defaulted under or breached this Agreement, for any failure or delay in performing any term of this Agreement, when and to the extent such failure or delay results from acts beyond the affected party’s reasonable control, including, without limitation: (a) acts of God; (b) flood, fire, earthquake or explosion; (c) war, invasion, hostilities (whether war is declared or not), terrorist threats or acts, riot, or other civil unrest; (d) epidemic or pandemic; (e) actions, embargoes or blockades; (f) action by any governmental authority; (g) national or regional emergency; (h) strikes, labor stoppages, or slowdowns or other industrial disturbances; and (i) shortage of adequate power or transportation facilities.

Here, upon a force majeure event, if either Seller or Buyer is unable to perform its obligations under the grape purchase agreement because of an event beyond its reasonable control, that party can claim force majeure and will be excused from performance during the continuance of the force majeure event. So, for instance, if the Seller’s crop is affected by floods that it could not have reasonably foreseen and it can only deliver 50% of its promised crop to its Buyer, it would have a reasonable defense against its obligation to deliver the entirety of the crop.

Okay, the Buyer says, I see “fire” listed above, so does the force majeure provision permit me to avoid purchasing grapes that may be tainted by smoke? Probably not. To understand why, it’s important to understand the Buyer’s obligations under a grape purchase agreement.  Those obligations are actually fairly limited.  First, and most obviously, the Buyer is obligated to pay for the grapes, and second, the Buyer is obligated to physically accept delivery of the grapes.  A buyer may have other obligations as well, depending on the specific language in the agreement, such as directing the timing of harvest, providing bins, and providing wine samples.

Which of the Buyer’s obligations listed above is the Buyer unable to perform because of fire?  If active fires exist in the Buyer’s immediate vicinity so that it is temporarily impossible or impracticable to operate, the Buyer may be able to invoke force majeure to delay accepting grapes until it is safe to reopen.  But what about a winery in an area generally affected by smoke that is able to remain open, and that has a concern about the quality of the grapes it is receiving?  That Buyer is still able to perform:  it can pay for the grapes as long as banks remain able to process transactions, and it can accept the grapes as long as it is safe to remain open.  Of course, a Buyer may not want to accept potentially smoke tainted grapes, but that does not mean that it is impossible or impracticable for it to do so.  Typical force majeure clauses address when a party can’t perform its obligations, not when it might not want to perform its obligations.

Often, grape purchase contracts also include specific quality warranties, including MOG, mold, rot, brix, and perhaps smoke-related metrics, which a Seller is obligated to meet, and which can serve as a basis for rejection by the Buyer if not satisfied.  Whether or not those kinds of quality-related warranties can be used as the basis for the Buyer to reject potentially smoke tainted grapes depends on the specifics of the provision and the facts at hand.  But we believe, based on the language commonly used in grape purchase agreements, that Buyers wondering whether they have the right to reject potentially smoke tainted fruit would be better served looking to their quality warranties rather than to their force majeure provision.

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