The first thing you have to check when determining the effect of the Force Majeure justification to non-performance of the obligation of timely delivery of goods by the Seller is the contracting parties. In the automotive business the Supplier in Mexico is often not the contractual party and the Seller, but the contract is made between the OEM (Original Equipment Manufacturer) or Tier 1 as Buyer and the Supplier's holding company as Seller.
This leads us to examine whether the contract is international or domestic. If the contract is international, the UN Convention on Contracts for the International Sale of Goods (CISG) might apply. The issue, however, is that in the automotive industry extensive and detailed Purchase Orders are imposed by OEMs and Tier 1 on the subsequent suppliers which incorporate Buyer's Terms and Conditions that are often heavily tilted in favour of the OEM or Tier 1. Those Terms and Conditions normally provide for opting out from CISG and apply local law subject to local jurisdiction at the domicile of the Buyer. OEMs and Tier 1 based in the US normally apply State law in their Terms and Conditions, for example, the law of the State of Michigan, and refer to dispute resolution before local courts or AAA arbitration under the commercial and not the international rules.
In this respect, Section 2-615 of the US Uniform Commercial Code (U.C.C.) allows a Seller to raise impracticability as a defense in a sales contract to justify non-performance. Generally, a party asserting the impracticability defense must prove: (i) that an unforeseeable event occurred; (ii) the nonoccurrence of the event was a basic assumption underlying the agreement; and (iii) the event rendered performance impracticable.
However, the provisions of the U.C.C. are subject to the supply agreement contained in Buyer's Terms and Conditions which prevail and normally include "Force Majeure" clauses which impose conditions such as extremely short notification obligations (e.g. one day), the right of Buyer to purchase goods from other sources, the obligation of Seller to provide goods from other sources, the right of Buyer to terminate the supply agreement if the delay in supply exceeds 30 days with the cost of cancellation to be borne by Seller and other obligations imposed on Seller that significantly limit the scope of the applicable law.
Therefore, it is important, that Purchase Orders and Buyer's Terms and Conditions are being scrutinized by Suppliers who might not even be a contractual party of the supply agreement in order to comply with notification requirements and the burdens established in the Buyer's Terms and Conditions which are likely to significantly limit the general legal regime applicable to Force Majeure.
