While most of us are rightly saying we have never seen anything like this before, there have been pandemics and the law does remember them and record what happened during them. Many of the legal issues that will be raised in the coming months and years arising out of the closures caused by the Coronavirus are not “unprecedented” – at least not in the common law.
In fact, imagine a case where an epidemic sweeps across the country and schools are closed for three months to halt the spread of the virus. Sound familiar? What happens to someone, hired on a written contract, when the business is closed by the pandemic? Does the worker have a right to the wages promised under the contract; or is the employer excused from paying by the common law “Act of God” doctrine (also known as “force majeure” doctrine or “impossibility” doctrine)?
The Michigan Supreme Court confronted this very issue in Dewey v Union School District of the City of Alpena, 43 Mich 480; 5 NW 646 (1880). In Dewey the plaintiff was hired as a schoolteacher on a written contract to teach for one school year beginning in September. But, in December a smallpox outbreak caused the school district to close the school for three months to prevent spread of the infection. The school district did not pay the teacher for the three months it was closed. The teacher sued the district and the matter went to trial where the jury found in favor of the school district. On appeal, however, the Supreme Court reversed. The Court held that the school district’s defense – that the smallpox outbreak and subsequent closure of the school was an “Act of God” that excused its performance – was invalid as a matter of law. The Supreme Court held the evidence in support of the defense was insufficient to sustain the jury’s verdict.
The Supreme Court explained that in order for an “Act of God” to excuse a party’s performance the alleged act must have caused performance “to be impossible” The court continued: “It is not enough that great difficulties were encountered, or that there existed urgent and satisfactory reasons for stopping the schools.” The Court concluded that no matter how wise the decision may have been to close the schools, the fact remained that the district made that decision and it could not later claim impossibility through a decision it was responsible for making.
What impact will this case (and others like it) have on disputes sure to arise in the coming months regarding contracts that were not performed during the Coronavirus pandemic? It will certainly depend on the facts of each case: who took action to cause the breach; was performance rendered impossible by the state’s “Stay at Home” order; was performance impossible, or merely more difficult?
Altior Law attorneys have extensive experience regarding contractual disputes, supply chain disputes, and lender relations. Our attorneys have, collectively, provided advice and representation to hundreds of clients through the “Great Recession” that began in 2008 and we stand ready to advise and represent clients in the likely coming “Coronavirus Recession”.
Authored by: Stephen T. McKenney