As explained in a previous blog post, a force majeure clause is a contractual allocation of risk that potentially excuses a party’s performance under a contract upon the occurrence of unanticipated events that are beyond that party’s control and fault.
If a contract contains a force majeure clause, the courts will strictly interpret the express language to determine the intent of the parties regarding which party, if any, should bear the risk of an unanticipated occurrence that rises to the level of a force majeure event.
When a contract does not include a force majeure clause, Pennsylvania law recognizes (1) the doctrine of impracticability of performance, which discharges the performance of an obligation where it is made impracticable by the occurrence of an event that the parties to the contract assumed would not occur at the time the contract was formed, and (2) the doctrine of discharge by supervening frustration, which discharges the performance of duties where a party’s principal purpose is substantially frustrated by the occurrence of an event that the parties to the contract assumed would not occur at the time the contract was formed. A force majeure clause may provide more, or less, protection than is generally provided by these common law doctrines. The force majeure clause supplants these remedies as a bargained for allocation of risk that is typically left undisturbed.
The application of any of these defenses is considered an extremely limited exception to the general rule that contracts are enforceable as written. The party seeking to excuse performance under s a contract bears the burden of establishing its entitlement to assert these nuanced defenses. Courts analyze the assertion of these defenses on a case-by-case basis.
Importantly, an occurrence that may appear to constitute a force majeure event does not necessarily excuse performance under a contract. It is crucial for a party to carefully analyze the applicability of these defenses before providing notice of its intent to assert them. By asserting a force majeure, impracticability, or frustration defense, a party is taking the position that the work cannot proceed for specific reasons. This increases the likelihood of being found to be in anticipatory breach of the underlying contract if the defense is ultimately rejected. An anticipatory breach occurs when a party demonstrates the intention to breach a contract, which exposes the party to liability.
Taking a concrete position may also limit a party to argue only the reasons that it expressly states in its notice. Therefore, the decision to take such action must be carefully analyzed in the context of the applicable law and the reasons for asserting such a defense must be carefully stated and properly documented. A balance must be struck between providing necessary specificity and maintaining appropriate broadness regarding the reasons for not performing a contractual obligation. Issuing notice before undertaking these tasks places the party asserting the defense at risk of ultimately lacking support for the defense and/or breaching the duty of good faith and fair dealing that is inherent in every contract. These concerns must be balanced quickly and accurately, as assertion of a force majeure defense may be subject to notice requirements.
Metz Lewis attorneys are mobilized to advise businesses and individuals regarding time sensitive coronavirus-related issues. Unprecedented times call for unprecedented measures, and we stand ready to provide our proven guidance to help you determine the best path forward in this uncertain future. Please do not hesitate to reach out to your Metz Lewis contact or Tim Berkebile (email@example.com or 412-918-1106) if you have any questions or wish to discuss.
This post was written by Timothy Berkebile and John Paul Regan