FORCE MAJUERE & COVID-19

November 16, 2020: The question posed is whether COVID-19 will excuse a tenant’s performance or payment of rent in a commercial lease under Pennsylvania law.

Fundamentally, force majeure is a term that describes a particular type of event which may excuse performance under a contract. “A force majeure clause lists a series of events . . . which the parties to a contract have agreed upon as excuses for nonperformance.”[1] Interpretation of a force majeure clause will usually involve a determination of whether the event that allegedly precluded performance is specifically identified among the force majeure events listed in the provision. It should be noted, however, that Pennsylvania state cases addressing force majeure are few and far between and whether COVID-19 constitutes such an event remains as novel as the virus.

Preliminarily, to determine whether a certain event excuses performance, the language specifically bargained for by the parties will typically be determinative, as the contractual terms will be controlling with common law rules merely filing in gaps left by the document.[2] In other words, when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure.[3] Accordingly, the courts applying Pennsylvania law typically interpret force majeure lists narrowly.[4]

Case in point is Sunseri v. Garcia & Maggini Co., 298 Pa. 249, 148 A.2d 81 (1929), wherein the defendant attempted to invoke force majeure so as to be excused from its obligation to deliver five carloads of garlic due to a partial crop failure. The Pennsylvania Supreme Court, in considering the contractual provision that would excuse the defendant's obligation in the event of a "crop failure", held that "crop failure" meant a total crop failure and applied general principles of contract interpretation further holding that if it was the intention of the parties to include a partial failure, they would have included a “crop shortage” among the permissible events.

Even if the incident that caused the failure to perform falls within the categories of events that are included in the force majeure clause, the event “must have been beyond the party’s control and not due to any fault or negligence by the non-performing party” and must not have been “foreseeable.”[5]

By way of example, in Macalloy Corp. v. Metallurg, Inc., 284 A.D.2d 227, 728 N.Y.S.2d 14 (N.Y.App.Div. 2001), the non-performing party sought relief via the contracted force majeure clause that included “plant shutdown” amongst an excusable event. In that instance, however, the non-performing party voluntarily shut down its plant due to financial considerations brought about by environmental regulations; regulations that it was aware of prior to entering into the contract. Based on the foregoing, the court held circumstances constituting a force majeure event did not exist, as financial hardship is not grounds for avoiding performance under a contract. Rather, force majeure excuses non-performance only where the reasonable expectations of the parties have been frustrated due to circumstances beyond the control of the parties.

In addition to the foregoing, 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.[6] In doing so, the non-performing party must show that he used due diligence in attempting to perform his obligation under the contract.[7] More so, acts of a third-party making performance impossible do not excuse failure to perform if such acts were foreseeable.[8]

Turning to the issue of COVID-19, the Pennsylvania Supreme Court, in addressing a challenge to the authority of Governor Wolf to issue his recent emergency proclamation compelling the closure of all non-life-sustaining businesses, held that the Governor did, in fact, have such authority because a COVID-19 pandemic qualifies as a “natural disaster” under the Emergency Code.[9]

The provisions of the Emergency Code, which apply to “disasters”, define “disasters” as a “manmade disaster, natural disaster or war-caused disaster.”[10] A “natural disaster” is defined as:

Any hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide, snowstorm, drought, fire, explosion or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.[11]

In rendering its decision, the court applied the doctrine of ejusdem generis[12] and, citing to the “other catastrophe” portion of the “natural disaster” definition, held that, although a viral illness is not included in the list of applicable disasters, the COVID-19 pandemic is of the same general nature or class as those specifically enumerated and thus is included, rather than excluded, as a type of “natural disaster.” It should be noted, however, that this determination was for the purpose of determining the intent of the Pennsylvania General Assembly. As such, although this decision is not contractually based, it will certainly be persuasive. More so, it is also important to note that the court relied heavily upon defined terms reminding us of the importance of the language contained in the force majeure clause.

By way of comparison, in the case of In re Jitz Rest.Grp. (Bankr. N.D. III. June 2, 2020), a tenant sought to be excuse from rental payments in response to Illinois’ stay-at-home order in reliance upon the contracted force majeure clause that provided “Landlord and Tenant shall each be excused from performing [if] laws, governmental action or inaction, orders of government [preclude performance].” The court noted that the stay-at-home order did not suspend all service. Rather, in-house delivery, third-party delivery, drive-through and curbside pickup remained available. Based upon this consideration, the court determined performance was only partially prevented by the stay-at-home order and held that the tenant was partially responsible for the payment of rent proportioned upon what its business could generate through takeout, which is not an ideal outcome for the landlord. The lesson learned from this case is to be clear and specific in the language used to draft the force majeure clause so as to avoid such an outcome.

It is important to note that even though force majeure is not directly applicable, or in instances where there is no force majeure clause, defenses to performance may still be available. Such defenses include impracticability, impossibility or commercial frustration.

In any event, the assertion of any of the aforementioned defenses discussed above are fact-specific and are typically expensive to litigate. As a result, it is worth exploring whether the parties to a contract can come to an agreement regarding how they will operate under these unprecedented circumstances. Before negotiating any amendment, it may be helpful to assess the strengths of any excuses for nonperformance.

Contact Glenn J. Smith, Esquire at 717-843-1639 or Glenn@MarcRobertaLaw.com for assistance in either evaluating, raising or defending against force majeure claims or any of the other defenses raised in this article.

[1] Kaplan v. Cablevision of PA, Inc., 448 Pa. Super. 306, 316 (1996).

[2] Rohm v. Crompton, No. 215, Commerce Case Program, Control No. 020435 (2002). citing R & H Falcon Drilling Co. v. American Exploration Co., 154 F.Supp.2d 969, 973 (S.D. Tex. 2000); also Unicover World Trade Corp. v. Tri-State Mint, Inc., No. 91-CV-0255-B, 1994 WL 383244 at 10 (D. Wyo. 1993).

[3] Id.

[4] See, e.g., Kobin, 2019 WL 114070, at *8 n.11 (explaining force majeure clause did not apply because “equipment failure” was not specified in list that included “acts of God, civil disorders, and other like events”); see also STI Oilfield Servs., Inc. v. Access Midstream Partners, No. 3:13-CV-02923, 2017 WL 889541, at *12 (M.D. Pa. Mar. 6, 2017) (determining under Pennsylvania law that scope of force majeure clause was an issue for trial because “acts of God” and “action of the elements” were “not specific enough” to cover hurricanes as a matter of law).

[5] Martin v. Dep’t of Envt’l Res., 120 Pa. Cmwlth. 269, 273–74 (1988); Rohm, supra. citing Martin, 120 Pa.Commw. at 273, which cites 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 (184).

[6] Martin, supra.

[7] Martin, 120 Pa.Commw. at 274.

[8] Martin, supra. citing Yoffe v. Keller Industries, Inc. 297 Pa.Super. 178, 443 A.2d 358 (1982).

[9] Friends of Danny Devito, et al. v. Tom Wolf, No. 68 MM 2020 (Pa. 2020).

[10] 35 Pa.C.S. § 7102.

[11] Id

[12] Under the statutory construction doctrine of ejusdem generis (“of the same kind or class”), where general words follow the enumeration of particular classes of persons or things, the general words will be construed as applicable only to persons or things of the same general nature or class as those enumerated. Indep. Oil & Gas Ass’n of Pa. v. Bd. of Assessment Appeals, 814 A.2d 180, 184 (Pa. 2002).