The Impact of the COVID-19 Virus on Your Contracts

As most businesses around the Commonwealth (and the nation) are forced to come to a grinding halt due to government directives related to the Covid-19 virus, many of us will have questions about the impact on our outstanding contractual obligations and rights.

Force Majeure Clauses

Many contracts you have contain a so-called force majeure (literally meaning “great force”) clause that excuses performance under certain unforeseeable circumstances that prevent the fulfilling of a contract. 

If your contacts do not include the words, force majeure, do not worry. Not all force majeure clauses are specifically titled as such, but may merely discuss excusing non-performance due to events outside a party’s control. 

Force majeure clauses vary widely, including in defining what constitutes a triggering event.  In all likelihood, a pandemic, such as Covid-19, may not be listed in most contracts as such a triggering event.  A party’s performance then may also be excused for other reasons, including the so-called “Acts of God”.  An “Act of God” is an action that arises naturally and is not the fault of any person.  Nearly all force majeure clauses list an “Act of God” as a triggering event sufficient to excuse contract performance.

To excuse performance, a force majeure must be both unforeseeable and beyond a party’s control.  Prior knowledge of the event or foreseeability generally will bar the use of the force majeure defense.  A government directive such as Governor Wolf’s recent governmental order to shut down all non-life sustaining businesses could be deemed as something beyond a contractual party’s control. 

However, if it can be shown that a non-performing party could have foreseen such a governmental order, it may not be able to use the force majeure defense. 

The force majeure clause also generally requires the non-performing party to mitigate the effects of the triggering event. 

Common Law Defenses

Even if a contract does not specifically contain a force majeure clause or a similar clause excusing non-performance due to events outside a party’s control, all may not be lost and the non-performing party may be able to utilize common law legal defenses such as excuse, frustration of purpose or commercial impossibility or impracticability.  Additionally, for the sale of goods, the Uniform Commercial Code excuses performance if a world-altering event makes performance impracticable. 

If you would like your contracts analyzed, please email us and, in the email, provide your name and contact information and an attorney at Nochumson P.C. will respond accordingly.

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