Do Inability to Perform Catchall Provisions Excuse Non-Performance Due to the COVID-19 Pandemic?
Many contracts contain an “inability to perform” provision. And these same provisions also often times provide specific excusable reasons for a party to not perform, followed by a catchall statement, setting forth “or any other cause beyond the parties reasonable control, whether or not such other cause shall be similar in nature to those hereinbefore enumerated”.
With the COVID-19 pandemic still in full effect, businesses across New York City have begun to face significant economic hardships, and are thus pointing to this catchall statement, as confirmation that they are likely excused from performing their contractual duties. However, they should not rely on such language, as these catchall provisions do not typically excuse non-performance that is not specifically referenced in the contract.
Impossibility of performance on the part of one of the parties to a contract by reason of some act or event not within the contemplation of the parties when the contract was made, may or may not potentially excuse performance and constitute a defense to an action for damages for breach of the contract. See Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900, 524 N.Y.S.2d 384, 519 N.E.2d 295 (1987) (In a lease between a lessor and lessee of a roller skating rink the lessee was not excused from its responsibility to obtain and maintain liability insurance under the force majeure provision of the contract or any catchall provision); Bouchard Transp. Co., Inc. v. New York Islanders Hockey Club, LP, 40 A.D.3d 897, 836 N.Y.S.2d 654 (2d Dep't 2007) (holding that a labor dispute involving a league-wide lockout ordered by the Commissioner of the National Hockey League, of which lessor was one of 30 teams, was a cause "beyond the lessor's control," within the meaning of the force majeure clause of the parties' lease agreement, thereby excusing the lessor's nonperformance under the agreement).
However, non-performance is generally not excused unless it is specifically accounted for by the terms of the contract. See One World Trade Ctr. LLC v. Cantor Fitzgerald Sec., 6 Misc. 3d 382, citing Kel Kim Corp., 70 N.Y.2d at 900. The courts have expressly stated that unexpected substantial economic hardship, caused by hurricanes and other similar natural disasters do not excuse performance when not specifically contemplated in the contract. See Ebert v. Holiday Inn, 628 F. App'x 21, 23 (2d Cir. 2015) (“Economic hardship, even to the extent of bankruptcy or insolvency, does not excuse performance.”). Accordingly, businesses should be wary from excusing themselves from performance, if the language preceding the inability to perform catchall statement does not specifically contemplate virus as an excuse to performance.
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