COVID-19 and Impracticability and Frustration of Purpose as Defenses to Breach of Contract Claims in Pennsylvania
In addition to any defenses to performance that may exist under force majeure provisions contained in a contract, Pennsylvania courts recognize impracticability of performance and frustration of purpose as defenses to breach of contract claims. However, the availability of impracticability and frustration of purposes defenses in any particular case is dependent upon the language of the contract and the facts and circumstances of the case.
Restatement (Second) of Contracts
The Pennsylvania Courts have adopted Sections 261, 264, and 265 of the Restatement (Second) of Contracts. Under the Restatement, when, after a contract is made, an event occurs that makes a party’s performance impracticable or that substantially frustrates the party’s purpose through no fault of his own and the non-occurrence of the event was a basic assumption on which the contract was made, the party’s duty to perform under the contract is discharged unless the language of the contract or circumstances indicate otherwise. A regulation or order of a domestic or foreign government which makes the performance of a duty under the contract impracticable may be an event the non-occurrence of which was a basic assumption on which the contract was made.
In analyzing the applicability of the defense of impracticability of performance, the focus of the inquiry is whether the non-occurrence of the circumstance was a basic assumption on which the contract was made. If a party’s performance under the contract remains practicable but is merely beyond the party’s capacity to perform it, the party is not ordinarily discharged from its obligations under the contract. If the impediment to performance is a government regulation or order, the regulation or order must make it impracticable for the party to both comply with the regulation or order and to perform under the contract.
Impracticability and Frustration of Purpose
To establish a defense of frustration of purpose, the purpose that is frustrated must have been the principal purpose of the party in making the contract such that, without this purpose, entering into the contract would make little sense. In addition, the frustration must be substantial, and the non-occurrence of the event must have been a basic assumption on which the contract was made.
With respect to the defenses of both impracticability and frustration of purpose, a party has an obligation to make reasonable efforts to overcome the impediment to performance. In addition, under Section 269 of the Restatement, if impracticability of performance or frustration of purpose is only temporary, the duty to perform may only be suspended temporarily and, when the impracticability or frustration ceases to exist, the party may then again be required to perform under the contract.
COVID-19 Breach of Contract
The contract and the surrounding circumstances in each case is unique. As a result, whether COVID-19 and governmental orders occasioned by it give rise to a defense under the principles of the impracticability of performance or frustration of purpose depends on a thorough analysis of each case. Norris McLaughlin is prepared to assist existing and new clients with a review of their leases, purchase and sale agreements, construction contracts, and other contractual commitments in light of these principles.
If you have any questions about the information contained in this blog or any related questions, please feel free to contact me at bhollenbach@norris-law.com. For other topics related to COVID-19, visit our Coronavirus Thought Leadership Connection.