In this time of uncertainty, businesses should examine their contracts to analyze the risk of non-performance of obligations and to identify force majeure clauses in light of the COVID 19 pandemic. Force majeure clauses, and the common law doctrine of impracticability, may excuse non-performance upon the occurrence of unanticipated events that are not within the control of either party. The restrictions imposed upon individuals and businesses as a result of the COVID-19 pandemic may excuse performance under contract or common law.
On March 11, 2020 the World Health Organization declared the COVID-19 outbreak to be a pandemic. Public health officials have relayed dire warnings about the potential global impact of the spread of infection in the absence of severe restrictions on contact between people. In an effort to stop or slow the spread of COVID-19 unprecedented restrictions have been imposed upon businesses, schooling, travel, and gatherings in both the United States and worldwide. According to the New York Times, as of March 20, 2020 approximately one in four people in this country have been ordered to stay home by their state or local governments. Many states have ordered all businesses that do not provide life sustaining services to close or move to online platforms, schools be shuttered, and events be cancelled or postponed indefinitely.
On March 19, 2020 Pennsylvania’s Governor Tom Wolf ordered that non-essential businesses and government offices close and mandated that all restaurants and bars restricted their food service to take out or delivery. This list was updated on March 20, 2020. (https://www.scribd.com/document/452553026/UPDATED-5-45pm-March-21-2020-Industry-Operation-Guidance). All non-essential government offices and all non-essential courts hearings and matters in the Commonwealth have been closed or rescheduled. Further, effective as of March 23, 2020 the residents of the counties of Allegheny, Bucks, Chester, Delaware, Monroe, Montgomery and Philadelphia have been ordered to stay at home.
The impact to businesses throughout this country will be severe. Supply chains have or will become disrupted or delayed, businesses may be required to close for an indeterminate amount of time and state and local offices and courts will remain closed until further notice. These measures have effectively shut down a large portion of the country’s economic engine, the long-term ramifications of which are unknown.
While parties may attempt to rely on a force majeure clause to excuse performance as a result of COVID-19 restrictions, the specific language of the force majeure or risk management clause to a contract will determine whether state and local mandates will entitle the parties to relief. In Pennsylvania force majeure clauses permit one or both parties’ non-performance of contractual obligations when the force majeure event is “beyond the party’s control and not due to any fault or negligence by the non-performing party.” Gulf Oil Corp. v. Federal Energy Regulatory Commission, 706 F.2d 444 (3d Cir.1983), cert. denied, 464 U.S. 1038, 104 S.Ct. 698, 79 L.Ed.2d 164 (1984). However, “the non-performing party has the burden of proof as well as a duty to show what action was taken to perform the contract, regardless of the occurrence of the excuse.” Id.
Even in the absence of, or in the alternative to a force majeure clause, businesses may invoke the common law doctrine of impracticability of performance of contractual obligations. The doctrine of impracticability permits parties to a contract to waive obligations or terminate an agreement where performance by one party is impracticable through no fault of the nonperforming party. West v. Peoples First National Bank & Trust Co., 378 Pa. 275, 106 A.2d 427 (1954). Similarly, parties subject to the UCC may be excused from performance pursuant to UCC §2-615 upon the occurrence of an event that was not anticipated by the parties, or when compliance with government regulation, renders performance of the contract impracticable.
Businesses should review their contracts, including the facts underlying the breach or potential breach, the specific force majeure clause and effects of COVID-19 restrictions on their business, and should communicate with business partners early and often regarding their circumstances, to ensure effective resolution to performance disputes.
The attorneys at Astor Weiss’ Business Law Practice Group are here to help your company scrutinize your existing contracts to identify potential contractual clauses as well as relevant facts and circumstances regarding performance obligations in light of recent mandates and changes to business in your locality. Anyone with questions about how their contractual obligations may be affected by COVID-19 should contact one of the attorneys in that practice group whose contact information is listed below:
|David Mandel, Managing Partner||Therese Allison, Associate|
|Office: (215) 790-0100||Office: (215) 790-0100|
|Direct: (215) 893-4959||Direct: (215) 893-4971|
|Direct Fax: (215) 400-2255||Direct Fax: (215) 400-2241|
|Email: firstname.lastname@example.org||Email: email@example.com|
|Alan Molod, Of Counsel||Stephen Green, Of Counsel|
|Office: (215) 790-0100||Office: (215) 790-0100|
|Fax: (215) 790-0509||Direct: (215) 751-1920|
|Email: firstname.lastname@example.org||Fax: (215) 790-0509|