An act of god is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties.
Act of god clauses envisage eventualities beyond the control of contracting parties. Such clauses are of two types: open and close ended. Close-ended clauses specify the exact events that constitute act of god. However, in an open-ended clause, the parties simply narrate what generally constitute act of god situations and add “and such other acts or events that are beyond the control of parties”. In the absence of clear agreement to the contrary, the parties to a contract are excused from the performance of their respective obligations on occurrence of such extraordinary acts.
The concept of act of god is often incorporated as clause in contracts which serves to release both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or other natural causes like flood, fire, earthquake, or volcano prevents one or both parties from fulfilling their obligations under the contract.
Most act of god clauses will list war as a Force Majeure event allowing a party to rely on the clause if they have been prevented or hindered from performing the contract due to the outbreak of war. Many act of god clauses will also include wording such as war or belligerent action, invasion, hostilities (whether or not war has been declared).
In many cases, the parties also add fire as a specific term in the act of god clause. In such cases if the goods or materials to the contract are damaged or destroyed in fire, the parties involved are absolved from liability of performance of the contract.
However, act of god is not intended to excuse negligence or other malfeasance of a party, as where non-performance is caused by the usual and natural consequences of external forces (e.g., predicted rain stops an outdoor event), or where the intervening circumstances are specifically contemplated.