Can I Cancel My Contract Because of the Coronavirus (COVID-19)?
As states and counties around the country are taking protective measures with the concern of the spread of the COVID-19 Coronavirus, the time has come for individuals and organizations to consider how their contractual agreements might be impacted or if their contracts are enforceable at all.
This article outlines several legal concepts that may be valuable in these uncertain times. However, careful review of the each individual contract and situation is paramount.
What is Force Majeure?
Some contracts contain “Force Majeure” provisions, which set forth the types of events, usually natural and always unforeseen, that if they occur, may excuse a party from its duty to perform under a contract. [1]
Whether an event constitutes Force Majeure depends on terms in the contract, the duties contemplated under that contract and the nature of the interfering event. If a contract does contain a Force Majeure clause, careful review of the contract needs to be made, in order to determine whether a party may use Force Majeure to excuse its performance of the contract.
What is Impracticality or Frustration of Purpose?
If a contract does not include a Force Majeure provisions or Force Majeure is not an available defense, all hope is not lost and a party might be able to rely on the common law defenses of impracticality or frustration of purpose. Pennsylvania law recognizes the doctrine of frustration of contractual purpose or “impracticability of performance” as a valid defense to performance under a contract.[2]
Performance can become impractical when it becomes significantly difficult or extreme due to an unforeseen event. [3] However, a simple change in the degree of difficulty or expense is not enough to invoke the Doctrine of Impracticability.[4] Impracticability also comes into play when when the law directly intervenes to make performance impracticable or impossible. A good example of this is the current governmental Coronavirus restrictions limiting and prohibiting certain types of activity like group gathering. [5] While these mandates have been put in place to protect public health, they may make performance of certain contracts impossible.
The doctrine of frustration is slightly different and may be available if a change in unforeseen circumstances or event destroys the value of the contract’s purpose. The doctrine of frustration is only applicable if the event is both substantial and beyond a party’s control. It is not simply enough that the transaction has become less profitable or even that the party will sustain a loss.[6]
Your unique circumstance
It cannot be overstated that a situation needs be evaluated on an individual basis in order to determine whether any of these defenses are useful. Just as the circumstances surrounding each contract differ, how the current circumstance and governmental restrictions impact the enforceability of contracts also varies.
Accordingly, as the current COVID-19 Coronavirus Pandemic continues to evolve and governmental response seems to change daily, early identification of contracts that may be impacted by the current situation is imperative to create an appropriate plan of action to protect your interests.
[1] Martin v. Com., Dep’t of Envtl. Res., 120 Pa. Cmwlth. 269, 273, 548 A.2d 675, 678 (1988).
[2]Alvino v. Carraccio, 400 Pa. 477, 482, 162 A.2d 358, 361 (1960); Step Plan Servs., Inc. v. Koresko, 12 A.3d 401, 411 (Pa. Super. Ct. 2010)
[3] The Restatement (Second) of Contracts § 261
[4] Id
[5]See Step Plan Servs 12 A.3d, at 412
[6] The Restatement (Second) of Contracts §265
Safa Ashrafi is an associate attorney in the Business Services group. She provides contract law guidance to clients in the municipal, banking and non-profit industries.
Nicholas Sandercock, a member of the firm’s medical malpractice defense and litigation practices, is well-versed in contract law, notably as it pertains to wedding law in Pennsylvania.
