Contracts And Coronavirus

What To Expect When Your Contract Is Breached

April 02, 2020

The Unsavory Truth About Contracts During a Pandemic

The current Coronavirus (COVID-19) pandemic has turned our way of life on its head. People are working from home, if they are allowed to work at all, as business interruption is commonplace. The government is providing relief to those who cannot work. Schools are closed and teachers are trying to implement online distance learning with students on the fly. Significant sporting events are postponed or canceled.

From a legal standpoint, all these events have one thing in common – contracts. There are more important things to worry about right now, but when life returns to normal, the reality of lost sales, lost profits, lost business opportunity, lost wages, and insurance claims will appear. When parties to a contract cannot perform their obligations, lawsuits occur. However, we are not in uncharted waters.

The Case of the Bus Driver and the Spanish Flu of 1918

Yes, pandemics have happened in North Dakota before and may not be as unprecedented as some are claiming. It was the Influenza Pandemic of 1918, aka The Spanish Flu, and it occurred during the middle of World War I. This article by Stephen McDonough of the Bismarck Tribune, written in 2017, does a remarkable job detailing the history of that pandemic and its effects on North Dakota. The article is worth your time. Of particular interest to yours truly, the leading graphic is a poster by the U.S. Public Health Service with the following ways to prevent the spread of influenza:

  • Spread by droplets sprayed from nose and throat
  • Cover each cough and sneeze with a handkerchief
  • Avoid crowds
  • Walk to work
  • Do not spit on the floor or sidewalk
  • Do not use common drinking cups and common towels
  • Avoid excessive fatigue
  • If taken ill, go to bed and send for a doctor

Sound familiar? And during this pandemic, the case of William Sandry, a school bus driver, arose in Williams County.

Sandry v. Brooklyn School Dist. No. 78 of Williams County, 47 N.D. 444, 182 N.W. 689 (1921) was a case brought by William Sandry (on his behalf and on behalf of three others) against the Brooklyn School District to recover compensation owed under a bus driver contract with the District. The contract required Sandry to transport students and teachers to and from the school during the school year, beginning September 23, 1918. The school was open for two weeks in September and October. But then, for a period of 13 weeks from October 7, 1918, to January 3, 1919, the school was shut down due to the pandemic of influenza. During this time Sandry did not perform his duties as a driver because there were no students or teachers to transport to and from the school.

The District paid Sandry and the other drivers during the time the school was open but not during the time the school was shut down. The lawsuit was started by Sandry to recover compensation owed during the thirteen-week shutdown. The trial court judge instructed the jury that Sandry performed his legal obligations under the contract if he was ready to go at a moment’s notice when the school reopened. The jury found in favor of Sandry and awarded him and the other drivers $775 in compensation.

The District appealed. The North Dakota Supreme Court considered the legal interpretation of the bus drivers’ contracts with the District and how those differed from teachers’ contracts with the District. The teachers’ contracts stated they would be paid during the school term, September through May, even if the school closed through no fault of the teachers. This language was required by state statute. The Supreme Court implied that the District agreed to pay teachers during a pandemic.

The Supreme Court found the bus drivers’ contracts did not contain the same language and there was no state statute on point. The drivers’ performance of the contract did not require special certification, the drivers were not required to supply the bus (it was owned by the District), and the contracts clearly paid the drivers for their service of driving. If the drivers were unable to perform the service of driving, the District was not obligated to pay the drivers if the District did not receive the performance of driving. The Supreme Court found either party was excused if performance became impossible without the fault of that party. Such impossibility arose because the Board of Health, not the District, closed the school due to the influenza pandemic. Therefore, the District was not obligated to pay the drivers during the shutdown.

So What? I’m Not a Bus Driver

As I write this, federal and state governments are mandating the closure of nonessential businesses to prevent the spread of COVID-19. As businesses are shuttered and people can’t go to work, companies and people will be unable to perform their contractual obligations. What happened in 1918 is happening again.

The lesson to learn from Sandry is this: Just because you and your neighbor are in the same physical position, it does not mean you and your neighbor are in the same economic or legal position. Contract language and interpretation matters.

A breach of contract is the nonperformance of a contractual duty by one party. A force majeure clause may help allocate that risk. The doctrine of frustration of purpose or the doctrine of impossibility may be a defense to that breach. Frustration of purpose occurs when, after a contract is made, one party’s obligations are frustrated without that party’s fault by the occurrence of an event that completely changed the party’s ability to perform. Red River Wings, Inc. v. Hoot, Inc., 2008 ND 117, ¶ 56, 751 N.W.2d 206. Impossibility occurs when a party’s performance of a contractual obligation is made impossible or impracticable by the occurrence of an event that was out of that party’s control. Id.

Whether you are the party attempting to enforce obligations of a breaching party, or you are the party defending against your breach, it is important to look to the language of the contract. The parties’ contract may already speak to these situations. If it doesn’t, common law may provide either enforcement of the contract or a defense to the breach. Regardless of which party you are, it is important to know what claims or defenses could be made because of the parties’ inability to perform contractual obligations during this pandemic.

Contact SW&L

If you need help enforcing contracts or defending nonperformance during these times, please contact us!