August 3, 2020

Volume X, Number 216

July 31, 2020

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COVID-19 and Executive Orders: When State Action Impedes Performance

The federal government and states across the nation have taken unprecedented action to prevent the spread of COVID-19. On March 21, 2020 Michigan Governor Gretchen Whitmer issued Executive Order 2020-20, which closed a number of restaurants, theaters, performance venues, gymnasiums and other places of public accommodation. On March 23, Gov. Whitmer issued Executive Order 2020-21, which ordered individuals to stay in their residences (subject to several exceptions). 

These and other similar governmental actions are clearly disruptive to commerce and contractual relations. Could these actions create important rights for a business or individual who cannot fulfill a contract without violating one or more of these orders? It depends.

If a contract does not have applicable force majeure terms or another governing clause specifically allocating rights in this situation, the parties have to consider whether further performance under the contract could be excused due to a supervening impossibility. Under Michigan law, in this analysis "[t]he important question is whether an unanticipated circumstance has made performance of the promise vitally different from what should reasonably have been within the contemplation of both parties when they entered into the contract."[1] In other words, did any party to the contract think about the possibility of the disruption that occurred when they signed the contract – and if no one did, should they have?

Similarly, several Michigan cases establish that if performing a contract results in violating clearly-stated public policy, the contract is void and unenforceable.[2] However, as is often the case, this rule is subject to a number of exceptions that may require performance even if doing so violates public policy.

The stakes here are high. Performance could be excused if there is a supervening impossibility, or it violates public policy. However, failure to perform may not be excused if one of the exceptions to the public policy rule applies, exposing the non-performing party to any resulting damages, which could be substantial. The analysis is guided by a detailed examination of the facts including the nature of the public policy supposedly violated, whether the legislature expressly provided for damages in the event of a violation, and, in some instances, an analysis of the parties' states of mind when they entered into the contract.

To further complicate the analysis, Michigan law is silent as to whether the public policy doctrine will serve to void a contract if the state adopted the public policy after the parties enter the contract. This doctrine will, however, doubtlessly develop to address the issues arising in these unprecedented times. 

Governmental actions nationwide in response to the COVID-19 crisis have fundamentally disrupted businesses of every size and scope. This disruption has both caused serious, significant issues regarding the fulfillment of contracts and created an environment within which entities might claim that they are entitled to be excused from further performance when no such grounds exist. If you are concerned about your rights and obligations in a disrupted business relationship, Varnum attorneys stand ready to assist.

[1] Bissell v. L.W. Edison Co., 9 Mich. App. 276, 285, 156 N.W.2d 623, 627 (1967) (citing 6 Williston, Contracts (Rev. ed.) § 1931). 
[2] Johnson v QFD, Inc.292 Mich. App. 359, 807 N.W.2d 719 (2011).

© 2020 Varnum LLPNational Law Review, Volume X, Number 97

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About this Author

John J. Rolecki Litigation Attorney Varnum Grand Rapids, MI
Partner

John represents clients in various types of complex commercial litigation and provides counsel on matters including regulatory compliance, licensing and insurance coverage. He has successfully represented clients in a range of litigation including contractual and supply chain disputes, unfair competition, creditors' rights, securities disputes and administrative actions. John's background in complex matters includes bringing cases to summary judgment, trial and courts of appeal in state and federal courts throughout the country.

Practice Areas

  • Insurance
  • ...
616-336-6398
Michael J. Roth Litigation Attorney Varnum Grand Rapids, MI
Partner

Mike focuses his practice on commercial litigation and trademarks. He also serves as a federal mediator. He has tried and arbitrated numerous commercial cases. 

Mike’s experience encompasses a range of business matters, including contract disputes with vendors, employment disputes, membership and shareholder disputes regarding asset and stock purchase agreements, ERISA claims and real estate disputes. He has particular experience representing clients in the Michigan automotive industry as well as manufacturing and professional services, including physician’s groups.

Rather than simply discussing the litigation process, Mike first consults with clients regarding their business goals. This approach allows Mike to develop practical legal strategies that have earned him the respect of clients who regularly seek him out not only for litigation, but also for litigation avoidance, general business counsel, and risk mitigation.

Prior to joining Varnum, Mike served as the president of the Law Weathers law firm. He currently serves as chair of Varnum's Litigation and Trial Practice Team.

Practice Areas

  • Business and Corporate
  • Coronavirus Task Force
  • Employment Litigation Defense
  • Litigation and Trial
616-336-6243
Olayinka A. Ope Litigation Attorney Varnum Grand Rapids, MI
Associate

Ola is an associate attorney on the litigation team. She has experience in a variety of litigation issues related to property disputes and toxic tort claims. Ola also has experience in corporate matters, including issues related to startup entity formation and employment benefit packages. She previously provided support to the immigration practice team, drafting work verification and petition letters for work employment visa applications.

Practice Areas

  • Litigation and Trial

Industries

  • Autonomous and Connected Vehicles
616-336-6714