The COVID-19 health crisis has led to government mandated shutdowns of non-essential businesses in Pennsylvania for an extended period of time. Further, due to ongoing health concerns, many questions remain about whether parties will be interested in performing under contracts even after stay-at-home and shut-down orders are lifted. For example, if you have a large event scheduled in August, will you want to hold it even if the Commonwealth permits large gatherings? If you have these types of questions, and have entered into a written agreement, it is important to determine whether there is a force majeure clause, and to examine it closely.
A force majeure clause is a contract provision that excuses a party from performance if an unforeseeable event arises during the terms of the contract. Commonly, this type of clause is referred to as an “act of god” provision. When drafting force majeure clauses, parties control the contours of the agreement and those contours will dictate the application, effect and scope of the clause. However, generally speaking, the non-performance must have been caused by an unforeseeable event at the time the contract was entered into. In addition, the event must not have been due to any fault or negligence by the parting asserting the application of the clause.
For courts applying Pennsylvania law, they will likely also look to see whether performance has been made impossible, not simply impractical. In Sunseri v. Garcia & Maggini Co., the Pennsylvania Supreme Court struck down a force majeure clause. The party asserting excusal under the clause did not fulfill its obligations under a contract due to crop failure. Although the contract included crop failure in the force majeure clause, the Court held that application of the clause was not valid due to a partial crop failure, which rendered performance still possible.
COVID-19 is an unprecedented occurrence that many courts have yet to address, particularly as it applies to the enforcement of contracts. The courts in Pennsylvania may apply “act of god” provisions to this pandemic, but that is uncertain and could depend on the contract language. This could vary on a case-to-case basis, considering the type of contract and material terms of the contract, such as scope in time. If the contract contains broad “act of god” language, then a court is probably more likely to apply the clause versus more specific language defined by the parties themselves. Moreover, there have been legislative efforts to enact laws that would mandate the application of any force majeure clause to apply to the pandemic. To date, state and local governments in Pennsylvania have not enacted such laws.
If you have concerns about how the COVID-19 will impact a contract with or without a force majeure clause, the Philadelphia lawyers at Sidkoff, Pincus & Green P.C. can assist you with these matters. To schedule an initial consultation, call us at 215-574-0600 or contact us online. Located in Philadelphia, we serve clients throughout Pennsylvania and New Jersey.