As a result of the impacts of COVID-19, many parties are having difficulty satisfying contractual obligations. As such, now more than ever, it is imperative that parties have an understanding of how New York Courts interpret the force majeure doctrine and the doctrine of impossibility, both of which may be used to excuse non-performance in certain circumstances.
As a general matter, New York Courts narrowly construe force majeure clauses. A party will be excused from performance only if the force majeure clause includes the specific event that prevents that party’s performance. Reade v. Stoneybrook Realty, 63 A.D.3d 433, 434 (1st Dept. 2009). In circumstances where an agreement does not include a force majeure clause, or where an agreement does not specify the relevant occurrence as a force majeure event, courts will generally not allow a force majeure defense to be claimed. General Electric Company v. Metals Resources Group Ltd., 293 A.D.2d 417 (1st Dept. 2002). Since the force majeure doctrine will generally only be available where a provision in an agreement specifically allocates risk in case of a force majeure event, it is crucial that force majeure clauses are carefully drafted so as to include COVID-19 and other public health emergencies.
Where the force majeure doctrine cannot be used to excuse non-performance of contractual obligations, a party may try to excuse its non-performance under the doctrine of impossibility. The doctrine of impossibility excuses non-performance where, among other things, performance of the contractual obligation is objectively impossible. Reed Found., Inc. v. Franklin D. Roosevelt Four Freedoms Park, LLC, 108 A.D.3d 1, 7 (1st Dep’t 2013). Accordingly, New York Courts have held that performance of a contractual obligation is not excused when such failure is occasioned merely by financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy. Id.; see also Ebert v. Holiday Inn, 628 F. App’x 21, 23 (2d Cir. 2015). In one of the early cases examining contractual relationships during COVID-19, the court did not excuse the defendants’ non-performance of a contractual obligation under the doctrine of impossibility merely because the defendants’ financial difficulties arose out of the COVID-19 pandemic and compliance with the PAUSE Executive Order. Lantino v. Clay LLC, No. 1:18-CV-12247 (SDA), 2020 WL 2239957 (S.D.N.Y. May 8, 2020).
Given New York courts’ hesitation to blindly use the doctrines of force majeure and impossibility to excuse non-performance, in the future, parties should pay particular attention to the force majeure clauses in their agreements and make sure such clauses are drafted with enough specificity to increase the chances that New York courts will rely on such a clause in order to excuse non-performance.
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