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Published in: Journal of Business Ethics 2/2022

04-03-2021 | Original Paper

Contracts Capsized by COVID-19: A Legal and Jewish Ethical Analysis

Authors: Tsuriel Rashi, Andrew A. Schwartz

Published in: Journal of Business Ethics | Issue 2/2022

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Abstract

Countless contracts have been undermined by the COVID-19 pandemic of 2020 as well as government orders to contain it. Flights have been canceled, concerts have been called off, and dorms have been closed, just to name a few. Do these all count as breaches of contract—or are the parties excused due to the extraordinary circumstances? And how should the losses be allocated between the parties? The law provides one set of answers to these questions; ethics offers another. With a focus on American law (developed over the past two centuries) and Jewish ethics (developed over millennia), this paper shows that the two systems are in accord with some respects and differ in others: Both law and Jewish ethics would excuse a party who cannot complete his contract due to a force beyond his control, like the COVID-19 pandemic. Yet Jewish ethics would require that the excused party still be paid, while American law would not.
Footnotes
1
See generally Pava, Moses L. (1998), The Substance of Jewish Business Ethics. Journal of Business Ethics 17, 603–617 (describing Jewish business ethics as a distinct branch of ethical thinking).
 
2
E.g., Prime Minister Jacinda Ardern, “Prime Minister’s statement on State of National Emergency and Epidemic Notice,” Mar. 25, 2020 (ordering entire population of New Zealand to “stay home and stop interactions with those outside the home”); “Coronavirus: Shanghai neighbor Zhejiang imposes draconian quarantine.” South China Morning Post. February 6, 2020. Archived from the original on February 6, 2020. Retrieved February 8, 2020.
 
3
“Overview – Coronavirus (COVID-19).” NHS.uk. UK National Health Service. Retrieved March 15, 2020 from: www.​nhs.​uk/​conditions/​coronavirus-covid-19/​.
 
4
“COVID-19 Travel Precautions.” CDC.gov. US Centers for Disease Control and Prevention. February 11, 2020. Retrieved 6 March 2020 from: https://​www.​cdc.​gov/​coronavirus/​2019-ncov/​travelers/​after-travel-precautions.​html.
 
5
“Social distancing: what you need to do – Coronavirus (COVID-19).” NHS.uk. UK National Health Service. Retrieved Dec. 20, 2020 from: https://​www.​nhs.​uk/​conditions/​coronavirus-covid-19/​social-distancing/​what-you-need-to-do/​.
 
6
Restatement (Second) of Contracts § 1 (Am. Law Inst. 1981) (“A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.”).
 
7
Dermott v. Jones, 69 U.S. (2 Wall.) 1, 7 (1864) (“[I]f a party by his contract charge himself with an obligation possible to be performed, he must make it good.... Unforeseen difficulties, however great, will not excuse him.”).
 
8
Restatement (Second) of Contracts (Am. Law Inst. 1981) ch. 11, introductory note (1981).
 
9
Dermott, 69 U.S. at 7 (“[I]f a party by his contract charge himself with an obligation possible to be performed, he must make it good, unless its performance is rendered impossible....” (emphasis added)).
 
10
Restatement (Second) of Contracts § 261 cmt. d (Am. Law Inst. 1981) (“Events that come within the rule stated in this Section are generally due... to ‘acts of God’....”); David Lazarus, How did God make it into millions of consumer contracts?, L.A. Times, https://​www.​latimes.​com/​business/​story/​2019-12-24/​acts-of-god-consumer-contract.
 
11
Dermott, 69 U.S. at 7 (“[I]f a party by his contract charge himself with an obligation possible to be performed, he must make it good, unless its performance is rendered impossible by... the law....” (emphasis added)).
 
12
Restatement (Second) of Contracts § 261 (Am. Law Inst. 1981) (“without his fault”).
 
13
Stees v. Leonard, 20 Minn. 494, 451 (1874).
 
14
Mineral Park Land Co. v. Howard, 156 P. 458, 460 (Cal. 1916) (“A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost.”).
 
15
Restatement (Second) of Contracts § 261 cmt. d (Am. Law Inst. 1981).
 
16
Id. (citation omitted).
 
17
See Mineral Park Land, 156 P. at 460 (“We do not mean to intimate that the defendants could excuse themselves by showing the existence of conditions which would make the performance of their obligation more expensive than they had anticipated, or which would entail a loss upon them.”).
 
18
Waldinger Corp. v. CRS Grp. Engineers, Inc., Clark Dietz Div., 775 F.2d 781, 786 (7th Cir. 1985).
 
19
Andrew A. Schwartz, Contracts and COVID-19, 73 Stan. L. Rev. Online 48, 50 (2020).
 
20
Restatement (Third) of Restitution and Unjust Enrichment § 1 (Am. Law Inst. 2011) (“A person who is unjustly enriched at the expense of another is subject to liability in restitution.”).
 
21
Restatement (Second) of Contracts § 377 (Am. Law Inst. 1981).
 
22
Id. § 377 (“A party whose duty of performance... is discharged as a result of impracticability of performance... is entitled to restitution for any benefit that he has conferred on the other party by way of part performance.”); id. cmt. a (“Furthermore, in cases of impracticability... the other party... is also entitled to restitution.”); Victor P. Goldberg, After Frustration: Three Cheers for Chandler v. Webster, 68 Wash. & Lee L. Rev. 1133, 1161 (2011) (“[T]he majority position is that restitution should be made for work performed and money paid before the intervening event.”).
 
23
This Section is adapted from Andrew A. Schwartz, Contracts and COVID-19, 73 Stan. L. Rev. Online 48, 52–54 (2020).
 
24
E.g., Victoria Y. Fan et al., Pandemic Risk: How Large Are the Expected Losses?, 96 Bull. World Health Org. 129, 129 (Dec. 5, 2018) (“Few doubt that major epidemics and pandemics will strike again....”).
 
25
E.g., Cal. Exec. Order N-33–20 (Mar. 19, 2020) (requiring “all individuals living in the State of California to stay home or at their place of residence,” subject to certain exceptions).
 
26
See Restatement (Second) of Contracts ch. 11 intro. note, at 311 (Am. Law Inst. 1981) (“In contracting for the manufacture and delivery of goods at a price fixed in the contract, for example, the seller assumes the risk of increased costs within the normal range.”).
 
27
Mineral Park Land Co. v. Howard, 156 P. 458, 459 (Cal. 1916) (describing “an expense of 10 or 12 times as much as the usual cost” as a “prohibitive cost” that justified excusing the promisor).
 
28
Jason Douglas and Daniel Michaels, New Data Reveal Just How Deadly Covid-19 Is for the Elderly, Wall St. J., June 27, 2020 (reporting that roughly “80% of deaths linked to Covid-19 in Europe were in people over 75”).
 
29
Id. (“Younger age groups account for a vanishingly small number of deaths [from COVID-19]. One study of deaths this year until mid-May showed that in seven countries including the U.S. with a combined population of 137 million children and teenagers, just 44 deaths were attributed to Covid-19, compared with 1,056 from unintentional injury”).
 
30
Restatement (Second) of Contracts § 367 cmt. a (Am. Law Inst. 1981) (“A court will refuse to grant specific performance of a contract for service or supervision that is personal in nature. The refusal is based in part upon the undesirability of compelling the continuance of personal association after disputes have arisen and confidence and loyalty are gone and, in some instances, of imposing what might seem like involuntary servitude.”); see, e.g., Northern Del. Indus. Dev. Corp. v. E. W. Bliss Co., 245 A.2d 431, 434 (Del. Ch. 1968) (“performance of a contract for personal services... will not be affirmatively and directly enforced”).
 
31
Id. § 261 cmt. d (a “mere change in the degree of difficulty or expense..., unless well beyond the normal range, does not amount to impracticability”).
 
32
Id.
 
33
For further details on this matter, see Rashi, 2020.
 
34
For further discussion, see Galas, 1979; Lorberbaum, 2000.
 
35
For further details on this matter, see Rashi, 2019.
 
36
The Chatam Sofer acted this way out of moral and ethical considerations and not according to the letter of the law, as it was recounted (Tractate Bava Metzia 83A) about Rabbah Bar Chanan, who paid full wages to the workers who broke his barrels through negligence, based on the verse “Thus you will walk in the ways of the good” (Proverbs 2:20).
 
37
See also Responsa Minchat Asher, Part 2, Sect. 120, item 6 (about teachers not working owing to war) and Rabbi Ovadiah Achitov, “Payment of wages of workers who did not work in time of war,” Shaarei Tzedek 8 (2007), pp. 173–187.
 
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Metadata
Title
Contracts Capsized by COVID-19: A Legal and Jewish Ethical Analysis
Authors
Tsuriel Rashi
Andrew A. Schwartz
Publication date
04-03-2021
Publisher
Springer Netherlands
Published in
Journal of Business Ethics / Issue 2/2022
Print ISSN: 0167-4544
Electronic ISSN: 1573-0697
DOI
https://doi.org/10.1007/s10551-021-04773-9