Tuesday, March 31, 2020

CHILD SUPPORT - COLLEGE EXPENSES


Many financial advisors claim that it's more important to save for retirement than it is to pay for your kids' college. But this can change when a court is involved in your divorce.

Messinger v Messinger, 2020 NY Slip Op 50215(U), Decided on February 11, 2020, Supreme Court, Monroe County, Dollinger, J.:

"Defendant brought this post-judgment application seeking contribution for college expenses for the parties' daughter. After an initial hearing, this Court preliminarily indicated that some contribution would be appropriate, but concluded that additional discovery was needed in order to calculate the appropriate amount. The Court issued an opinion confirming those details dated April 24, 2019. Thereafter, the matter was scheduled for an additional hearing. After exchanges of settlement proposals and a hearing, this Court now resolves the contributions of each parent and the issue of attorneys fees.

1. The College Expenses for the Daughter

As noted earlier, the couple made an agreement regarding the payment of college expenses for their son but not their younger daughter. In the record before this Court, both parents have access to ample resources to finance the college costs of their daughter. The parties anticipated financing college costs because they establish a 529 account for their children and the account has funds remaining after the education of their older son. In addition, the husband has a retirement pension from the State of New York and a substantial deferred compensation account. He also works part-time. The wife also receives a portion of the husband's pension, courtesy of equitable distribution, and has a substantial benefit in her marital share of the deferred compensation account, even though it is, upon information and belief, undistributed at this stage. She is also employed.

In short, both parents are working and generating income. Based on these facts, [*2]which are undisputed, it appears that both parents should share in some part of the college costs on a pro rata basis. Neither party disputes that this Court may direct parental contributions to the daughter's education even absent an agreement. Matter of Paccione v. Paccione, 57 AD3d 900 (2d Dept 2008); Matter of Rabasco v. Lamar, 106 AD3d 1095 (2d Dept 2013)(the court must consider the circumstances of the case, the circumstances of the respective parties, the best interests of the children, and the requirements of justice). The later two criteria are easily quantified here: the parents concede that the best interests of their daughter require a college education — as they agreed for their son — and intra-family justice — giving their daughter the same opportunity as their son — is evident.

In their agreement regarding the financing of their son's college education, the father agreed to finance the son's college costs, except for a $6,000 "student loan per annum." However, at that time, the father's income was significantly higher than his current income, The agreement, requiring the father to finance the college education for the son, was signed in 2014. In 2016, the last full year that the father worked, he earned in excess of $115,000. However, the father was nonetheless entitled to determine when to retire, an event that resulted in the distribution of the marital share of his state pension to his former wife and the mother of the child seeking college assistance. There is no evidence in the agreement that the parents anticipated the father's retirement in his late 50s but, conversely, there is nothing that restricted his ability to retire. Given all these facts and the conclusion that the parents each received a significant pension benefit when the father retired, this Court will consider only the current income of the parties in allocating the college costs for the daughter. In this Court's view, a proportional allocation of the parental cost of the daughter's college education is not unreasonable, accords with the current financial circumstances of the parents and has some semblance to the terms under which the parents financed the son's education.[FN1]

This Court also notes one other aspect of the parties's agreement. In their allocation of college costs for their son, the couple agreed that neither parent would pay child support for their college-aged son. Art. VIII (I)(1). The parents also agreed to a deviation from the presumptive amount of child support for one child for a number of factors including payment of the daughter's equestrian expenses and the father's payment of the full cost of health insurance. In addition, as another deviation factor, the couple agreed that the father would finance the son's college education without a contribution from the mother. The amount of the agreed deviation from the presumptive amount of child support for one child was from $1006 per month to $675 per month. Importantly, there is no language in the agreement that suggests that when the father began financing a contribution to the daughter's education that any similar deviation in the presumptive amount of child support was anticipated. In short, there is nothing in the agreement that indicates that payment of the daughter's college [*3]expenses would result in a downward deviation of the father's child support obligation. In New York, the courts have declined to link payment of college expenses with child support obligations. Cimons v. Cimons, 53 AD3d 125, 133 (2d Dept 2008)(tuition expenses are separate from child support).

In prior instances, this Court has imposed a cost sharing as follows: one-third to the student and the remaining two-thirds divided in a pro rata fashion to the parents according to annual income. The child's share is reduced by any grants or scholarships and if the amount of such grants or scholarships exceeds the student's one-third share, then that amount reduces the respective shares of the parents. This Court has also considered whether the Court should impose what is commonly-referred to as a SUNY-cap. Matter of Wheeler v. Wheeler, 174 AD3d 1507, 1508 (4th Dept 2019); Borrelli v. Borrelli, 63 Misc 3d 1202(A)(Sup.Ct. Monroe Cty 2019). In their agreement to cover the college costs of their son, the couple imposed a SUNY-cap, equivalent to the costs associated with State University College at Brockport. In this court's view, a similar cost containment feature should be imposed on the daughter's college education costs.

One other issue looms in the allocation of costs and involves the consequences of student loans obtained by the daughter. In other contexts, New York courts have required parents to shield their children from student loans. See Matter of Rashidi v Rashidi, 102 AD3d 972 (2nd Dept. 2013)(even though the judgment of divorce applied a SUNY cap and despite any language regarding the allocation of the student loans, the court held that the parents were liable to repay any loans incurred by the son); Bungart v. Bungart, 107 AD3d 751 (2nd Dept. 2013) (in the absence of a clear and unambiguous provision expressly authorizing the deduction of the children's student loans from the college expenses toward which the parties agreed to pay, a court should not take into account any college loans for which the student is responsible). In this instance, the Court will still require the daughter to seek loans up to $6,000 per year and be responsible for such loans. In that manner, the daughter is treated to the same allocation of loan debt given to her brother in the parent's agreement.
Based on these facts, the Court orders the parties to divide the daughter's college costs as set forth above: a SUNY-cap equivalent to the annual costs at the College at Brockport, one-third allocated to the daughter (offset by grants or scholarships and supplemented by loans up to $6,000 per year) and the parents pay, in pro rata shares based on their annual income, the remaining costs.[FN2] In addition, any 529 account allocation should be credited equally between the parents, as these sums were marital money contributed to these tax-deferred accounts.[FN3]

2. Attorneys fees for the effort to define the college contributions.

Defendant's counsel asks for an award of $9,663, while Plaintiff asks for an award in his favor of $6,540. As Defendant correctly contends, "the [ex]-husband is the monied spouse and, thus, there is a rebuttable presumption that the [ex]-wife is entitled to an award of attorneys' fees" (Hof v Hof, 131 AD3d 579, 581 [2d Dept 2015], citing Domestic Relations Law § 237). The Court perceives nothing in this proceeding that would rebut that presumption. As to the amount, "[t]he decision to award an attorney's fee in a matrimonial action lies, in the first instance, in the discretion of the trial court" (Piccininni v Piccininni, 176 AD3d 880, 881 [2d Dept 2019] [internal quotation marks omitted]). In exercising its discretion, the Court looks to "the financial circumstances of the parties and the circumstances of the case as a whole, including the relative merits of the parties' positions and whether either party has delayed the proceedings or engaged in unnecessary litigation" (id.). Based on the evidence before the Court, the Court does believe there this proceeding was initiated by the father's refusal to pay a proportionate share of the college expenses and his insistence, conveyed through an email, on a reduction in child support to finance the costs. There is evidence that the father in an email before the proceeding was commenced proposed to the mother that he would reduce his child support by an amount necessary to cover the college expenses. In essence, the father's position would have required the mother to concede a further deviation in presumptive child support payable to the mother to cover the cost of daughter's college expenses. Nothing in the agreement justifies that posture by the father. This Court has, in the past, refused to countenance a parent who holds their breath while the child attends college, declines to finance the cost as it accrues and then, after their spouse has financed up-front costs, seeks to negotiate a lesser deal in the process of expensive litigation.

While this Court considers the father's posture to justify a fee award, it does not believe a fee award in the full amount requested is justified, given the relative financial circumstances of the parties. This Court also cannot ignore the fact that these parents jointly neglected to agree on a method of financing their daughter's college education, when it must have been readily apparent when they signed their separation agreement that their daughter — whose parents and older brother attended college — would follow in their footsteps. In that regard, both parents share some culpability in this proceeding and its lengthy delays.

Accordingly, in the Court's discretion, Defendant's request for fees is granted and she is awarded FIVE THOUSAND DOLLARS ($5,000.00) in attorney's fees, to be paid within 30 days of the date of this Decision. The father's request for fees is denied.
________________________
Footnote 1:Apparently, the wife has yet to receive her marital share of the husband's New York State deferred compensation account. However, she acknowledges that the sums in her share could exceed $150,000 and, in this Court's view, these sums could provide an adequate source of funding for the wife's contribution, as well as the father's.

Footnote 2:The parties, in their agreement defined college expenses for their son as including applications, fees, tuition, room, board, school fees, lab fees and books. The Court applies this agreed definition to the costs for the daughter as well.

Footnote 3:This Court is aware that the daughter has already matriculated for several semesters. However, the contributions of both parents should be applied to all past and future semesters and to the extent that an accounting of contributions by the respective parents is required to achieve the allocation set forth in this opinion, the parents should conduct that accounting and grant offsets or credits to future expenses as required before an order is submitted to the Court." 

Monday, March 30, 2020

GUIDELINES FOR NEW YORK COURT VIDEO CONFERENCING


Joining Skype For Business Meeting


New York State Unified Court System has been using Skype for Business (SfB) for both internal videoconferencing and remote video appearances with external parties, such as attorneys, litigants, and witnesses.  This guide is for those who wish to join a court-organized videoconferencing call. 

Q1.  What are the minimum requirements for participating a SfB videoconferencing call?

A1. You must have a decent computer or smartphone with up-to-date operating system, and a high-speed Internet connections.

Q2. I don’t have a Microsoft Office365 Account, can I join a SfB videoconferencing call?

A2.  Yes, you can still fully participate in a SfB video call from a web browser without paying for a license.

Q3. Why is it important to have a decent computer with an up-to-date operating system?

A3. Videoconferencing requires more computer horsepower than regular applications, such as a word processor.  Obsolete Operating Systems, such as Windows 7, not only have security holes, but also may exhibit unpredictable behavior when joining a Skype call. 

Q4. Can I join a SfB videoconference call without a webcam?

A4. Most laptops or tablets, as well as smartphones, have built in webcams.  If you don’t have a webcam, you can still join the SfB meeting.  People can hear you, however, they cannot see you, which is not desirable in most court proceedings.

Q5. What would you recommend for the audio?

A5. Obviously, you don’t have a meaningful videoconferencing calls without the audio.  To achieve the best effects, we recommend the use of a USB headset.  You may use an external speakerphone or built-in speaker and microphone within your device, however it might pick up background noises.  In those cases, you should sit close to the microphone.

Q6. How can I know my Internet connection is good enough for a Skype video call?

A6. Most people have broadband (highspeed) connections from their service providers, such as Spectrum, Cablevision Lightpath (Xfinity), or Verizon Fios.  Under normal circumstance, those broadband connections are more than sufficient to support Skype video calls.   Keep in mind that when you are joining a Skype video call during the emergency, you are competing the same bandwidth with other people staying home working, learning and being entertained.  Sometimes you may see your video has a lag and a pixelization.  This is a sign of Internet traffic congestion.  The problem usually will clear up by itself after a few seconds, so please be patient.  In addition, please connect your computer to a network port in your router if possible.  A wired connection has better performance than a Wi-Fi connection.

Q7. How can I prepare myself for the Skype video calls?

A7. We cannot emphasize enough the importance of performing a test well ahead of time to ensure equipment compatibility and to familiarize with the interface.  You may send your cell phone number, email address, and preferred date and time for the test to skypetest@nycourts.gov.  We will schedule a test call, send you the invitation and conduct the test with you.

Q8.  Is Skype for Business secure?

A8.  All communications on Skype for Business are encrypted.  Microsoft designed the product with security in mind.  To learn more about security features:  https://docs.microsoft.com/en-us/skypeforbusiness/optimizing-your-network/security-guide-for-skype-for-business-online

Q9. Can you share documents with all the participants?

A9.  While you can use Skype for Business for document sharing, we recommend you contact the clerk handling your case about the best approach for sharing/sending documents.  If you have to, you can  share documents within SfB in two ways: either open the document and share the desktop for the parties to view, or share the document as an attachment for the parties to download, view and print.  Be aware that the document sharing feature might not work on all platforms.

Q10. Where I can find tutorial on using Skype for Business?

A10. Please click on the link below:

https://support.office.com/en-us/article/join-a-skype-for-business-meeting-3862be6d-758a-4064-a016-67c0febf3cd5#OS_Type=Windows

Q11.  What are the most common problems a user will encounter, and where I can get technical support during the video call?

A11.  Common issues include:

·        People cannot hear you: Make sure you are not muted. B)  Select the correct audio device.

·        I cannot hear other people:  Make sure other people are not muted.  B) Raise your speaker volume.

·        My video is off:  Make sure the camera is turned on and the correct camera is selected when you have a multiple cameras.

·        I hear echo:  Lower the volume of your speakers will usually reduce echo. 

·        Hanging up and reconnecting a call will many times resolve the issue. 

·        My Skype call becomes non-responsive:  This is usually caused by some other software or background process running on your computer.  Make sure your all your software is updated and security patched well ahead of the video call.  It is also a good idea to reboot your computer at least one hour before the meeting to get a fresh start.

·        I am in the middle of the video call, something goes wrong.  What should I do:  It is impossible to provide technical support in the middle of a call?  If problems cannot be resolved using the tips above, the best bet is to hang up Skype and reconnect.

Q12. Can I use my Skype to join a SfB video call?

A12.  Many of you may be familiar with Skype, a videoconferencing and IM product targeted at the consumer market.  Skype for Business (SfB) is an enterprise platform for secure communications and collaboration.  For all intent and purpose, you cannot use Skype in court-organized SfB video calls.

Q13. Why can’t I use other products, such as FaceTime, for videoconferencing with the courts?

There are many videoconferencing products in the market. For example, FaceTime is excellent for point-to-point video calls if both ends use Apple products.  When using videoconferencing in a court proceeding, we must use SfB, a proven product current in use by the court system that is secure, scalable to support multi-party call, versatile to work with different computers and smartphones.  

Q13.  Whom should I contact to schedule a Skype video call with the judge and other parties?

A13. You should contact the clerk of the appropriate court for procedure on how to schedule and participate a videoconferencing call for courtroom proceedings or attorney/client consultation.  More information could be found at www.nycourts.gov

Q14. Can I join a Skype video call using an iPhone or Mac?

A14.  Yes, please go to Apple App Store to download the Skype for Business app (not the regular Skype app).

Q15. If I join the meeting from home, what should I do to achieve the best audio and visual experience?

A15.  Select a quiet room, preferably no windows behind you.  If you do have windows behind you has to be behind you, close the blinds.

Q16. How come I am unable to download the Skype web plug-in?

A16.  This is most likely a security setting on your computer that is set to prevent you from downloading the plug-in.  Please see technical support in your organization and let them know you need this mission critical application to work. 

Q17.  Can I join the meeting from multiple devices at the same time?

A17. Some of you have set up multiple devices at home to be ready for S4B video calls.  We want to commend you being prepared for equipment failure.  However, it is not a good idea to have two devices, such a smartphone and a laptop, joining the Skype call at the same time.  In addition to create confusions for everyone, this will waste Internet bandwidth, and cause feedback and echo for everyone. 

Q18.  How can I have the best Virtual Courtroom experience?

A18.  If at all possible, adding a second monitor will enhance the virtual court room experience.  One screen can be used for viewing the video feed of the call and the second screen can be used for document viewing or other work. Here are three common approaches to setting up dual monitors at home:

·        Connect an external monitor to your existing laptop or desktop.

·        Use your laptop for videoconferencing, use your desktop PC for email and document viewing.

·        Use your smartphone for videoconferencing, use your laptop or desktop for email and document viewing.










Friday, March 27, 2020

A CONTRACT IS A CONTRACT - ANOTHER VIEW



Yesterday, I posted the case CENTI v. McGILLIN, 2019 NY Slip Op 9058 - NY: Court of Appeals December 19, 2019 where the Court of Appeals refused to deny the enforceability of a loan on the ground that it was funded by illegal gambling proceeds. Now contrast that case with Doe v. Doe, NYLJ March 26, 2020, Date filed: 2020-03-16, Court: District Court, Nassau, Judge: Judge Scott Fairgrieve, Case Number: SC-002118-19OB:

 "Plaintiff commenced a small claims case against Defendant for $650 for breach of contract. Defendant brought a counterclaim against Plaintiff for $325 for nonperformance. On November 27, 2019, the court dismissed both the claim and counterclaim for the reasons set forth herein.

Testimony of Parties

The parties orally agreed that Plaintiff would work on Defendant’s daughter’s college applications, for an agreed upon rate of $125 per hour for each hour working with Defendant’s daughter in person. For any hours that Plaintiff was working independently at his residence, the rate was $100 per hour. There was no written agreement. The understanding was that the Plaintiff would provide assistance to work on the Defendant’s daughter’s college essays. Defendant regularly paid Plaintiff for the services he provided. Plaintiff alleges that Defendant was content with the services rendered.

The essays were to be submitted through the Common App, which is an online platform to submit college applications. On September 22 and 23, 2019, Plaintiff independently worked on two essays for Defendant’s daughter’s application to the University of Georgia at his home for a rate of $100 per hour. He sent the essays to the Defendant and her daughter for review. Plaintiff said they were very happy with the product. On September 24, Defendant met with her daughter’s school guidance counselor to discuss the essays. Defendant testified…, “any college advisor is fully aware that you show it to your guidance counselor. The guidance counselor read them and said who wrote these, a 40-year old man?” (Transcript at p10). Defendant called the Plaintiff on the phone to express her concerns that the essays were not written by Defendant’s daughter.

The final bill due to the Defendant was for $650. This was comprised of four hours working independently at a rate of $100 per hour, and two hours of working with Plaintiff’s daughter at a rate of $125 per hour. Plaintiff believed that the Defendant would pay the total $650 that was due but was never paid.

Defendant testified that her understanding of the agreement was that the Plaintiff would only edit the essays. Defendant and her daughter felt pressured to use Plaintiff’s services because they were on a time constraint to get the college applications sent out. The school guidance counselor expressed his concern for having the Plaintiff write the essays because the student must certify that they wrote the essay. Plaintiff admitted that he knew that the Defendant’s daughter had to certify that she wrote the essays.

Decision

The Common App is used as a platform for students to easily apply to colleges. As per the Common App students must certify that their whole work is their own. The Plaintiff’s occupation of writing and editing essays for students puts him on notice of the certification. He knew that students would have to certify that the essays are their own work because he has written essays for students in the past. The Defendant is also on notice because she allowed the Plaintiff to work on her daughter’s essays on his own time. Both parties knew that the Plaintiff was writing the essays on behalf of the daughter with the intention of sending the essays to the schools. Thus, the parties entered into an illegal contract.

When both parties are equally at fault (in pari delicto), the courts tend to leave the parties as is. “The doctrine of in pari delicto, Latin for equality of fault, is grounded on two premises: (1) courts should not lend their good offices to addressing disputes among wrongdoers; and (2) denying relief to a wrongdoer is an effective means of deterring illegality.” (28 N.Y. Prac., Contract Law §7:13).
Both the Plaintiff and Defendant are at fault because they knew the essays were not the work product of the Defendant’s daughter. The Plaintiff worked on the essay on his own time, at his own house, not in the presence of the daughter. The Defendant agreed to allow the Plaintiff to work on the essays at his home. Therefore, they both knew the work was not performed by the Defendant’s daughter.
It is well settled that illegal contracts will not be enforced by the courts. In Carmine v. Murphy, 285 N.Y. 413 (1941), plaintiff allegedly sold and delivered alcoholic beverages to the defendant and demanded that the unpaid balance be paid in full. The plaintiff was not properly licensed to sell or distribute alcoholic beverages in the State of New York. The general rule is that no action can be based upon an illegal contract (Carmine v. Murphy, 285 N.Y. 413 (1941)). The Court held that the contract was illegal and unenforceable.

Additionally, in Parpal Restaurant, Inc. v. Robert Martin Company, 685 N.Y.S.2d 481 (2nd Dept. 1999), plaintiff brought an action seeking a permanent injunction barring a construction project from expanding streets abutting the plaintiff’s subleased premises. The contract was deemed illegal since it was created for the purpose of improper tax avoidance. Thus, the contract was unenforceable.
Furthermore, in Sabia v. Mattituck Inlet Marina and Shipyard, Inc., 805 N.Y.S.2d 346 (1st Dept. 2005), plaintiff sued defendant for breach of contract and fraud. Plaintiff alleged that a boat purchased from defendant was faulty. As per their original agreement, both parties attempted to avoid payment of sales tax on the purchase of the boat. “Since no right of action can arise from an illegal contract, plaintiffs are barred, as a matter of law, from suing on the alleged agreement for the purchase of the boat…” Id. at 347. The court ruled the scheme to be illegal and therefore unenforceable.

Similarly, here the oral contract between the Plaintiff and Defendant is illegal. Both parties knew that the essays must be the sole product of the Defendant’s daughter. The Plaintiff cannot write the essays and have the daughter assert that it is her own work. As per their agreement, the Plaintiff and Defendant attempted to create a scheme in which they would present the Plaintiff’s work as the work of the Defendant’s daughter. The schemes in the previously mentioned cases, were deemed illegal leading the court to rule the contracts were unenforceable. Here, the contract was illegal since it was based on a scheme to defraud the institutions of higher learning, which the daughter was applying to for admission. Thus, the contract is unenforceable.

In Stone v. Freeman, 298 N.Y. 268, 271 (1948), plaintiff brought suit against defendant to recover commissions for the sale of clothing. The plaintiff sold clothing to the defendant. The plaintiff used a broker and the defendant used a purchasing agent. The agreement between the broker and purchasing agent provided that the broker was to pay a portion of his commissions to the purchasing agent. This alleges a conspiracy since it is illegal to pay commissions or bonuses to a purchasing agent because they are on different sides of the contract. Due to this conspiracy, the contract was unlawful, thereby making it unenforceable. “A broker or agent who knowingly participates in a criminal scheme is a principal, and in pari delicto with the one who employs him, so that neither may sue the other.” (Id. at 271). The court held that the case should be dismissed.

Here, Plaintiff and Defendant were involved in an illegal agreement. Plaintiff and Defendant were in pari delicto. The present contract was illegal since both parties knew they were submitting plagiarized work. Plaintiff testified, “They have to certify the whole work is their own.” (Transcript at p14). Defendant testified that when her daughter sent in her application, she was not supposed to have a ghost writer (Transcript at p11). Therefore, they were both at fault and could not be granted a money judgement from the court.

According to The Common App, the college application process prepares students for independence that comes with college. This forces students to take responsibility for their work and be proud of their work product.

Since the agreement between the Plaintiff and Defendant is based on illegal conduct, the court refuses to aid a litigant who petitions relief. The law does not aid either party since they are equally at fault (28 N.Y. Prac., Contract Law §7:13).

Conclusion

The court will not grant a money judgement to the parties since the agreement is based on illegal conduct. Both the claim and counterclaim are dismissed with prejudice."

Thursday, March 26, 2020

FOR THIS HEALTH CRISIS - INSURANCE COVERAGE


There is an excellent article in today's New York Law Journal which "focuses on coverage for the immediate losses caused by coronavirus, including loss of revenue to businesses suddenly devoid of customers, businesses dealing with disrupted supply chains, and businesses forced to shutter either by concern for public health or by explicit government order."

It is written by Robin L. Cohen, Marc T. Ladd and Alexander M. Sugzda and if you have a subscription, here is the link:


A CONTRACT IS A CONTRACT



Fruit of the poisonous tree is a legal metaphor in the United States used to describe evidence that is obtained illegally. The logic of the terminology is that if the source of the evidence or evidence itself is tainted, then anything gained from it is tainted as well. But that metaphor may not apply to contract law and in this cases, it appears the Court of Appeals abides by the maxim: "He who comes into equity must come with clean hands."

CENTI v. McGILLIN, 2019 NY Slip Op 9058 - NY: Court of Appeals December 19, 2019:

"The doctrine of waiver does not preclude consideration of defendant's challenge here to the enforceability of the loan on the ground that it was funded by illegal gambling proceeds. Nevertheless, that defense was properly rejected on the merits. Given our strong public policy favoring freedom of contract, agreements are generally enforceable by their terms (159 MP Corp. v Redbridge Bedford, LLC, 33 NY3d 353, 359-361 [2019]). There is an affirmed finding, supported by the record, that the parties entered into a bona fide loan agreement and the facts do not support voiding the agreement on public policy grounds.

Neither the terms of the agreement nor plaintiff's performance — i.e., loaning money to a friend — was intrinsically corrupt or illegal. Although the loan was funded by the parties' illegal gambling operation (for which both were criminally prosecuted), the record does not support a characterization of their conduct as "malum in se, or evil in itself" (Lloyd Capital Corp. v Pat Henchar, Inc., 80 NY2d 124, 128 [1992]) and the source of funds used for a loan is not typically a factor in determining its validity. Defendant argues the agreement should be deemed unenforceable because the courts should not assist a party in profiting from ill-gotten gains. But, here, where both parties were involved in the underlying illegality, neither enforcement nor invalidation of the contract would avoid that result. Indeed, if the loan is not enforced, defendant receives a windfall despite his participation in the criminal acquisition of the funds. We have been reluctant to reward "a defaulting party [who] seeks to raise illegality as a sword for personal gain rather than a shield for the public good'" (id., quoting Charlebois v Weller Assoc., 72 NY2d 587, 595 [1988]; cf. McConnell v Commonwealth Pictures Corp., 7 NY2d 465 [1960]). Although we do not condone plaintiff's illegal bookmaking business, for which he was prosecuted and fined, the circumstances presented here do not warrant a departure from this tenet."

Wednesday, March 25, 2020

FOR THIS HEALTH CRISIS - A FREE RESOURCE ON UPDATES




FOR THIS HEALTH CRISIS - SOME UPDATES FROM A CPA






Nawrocki Smith LLP | 290 Broadhollow Road, Suite #115E, Mellville, NY 11747


FOR THIS HEALTH CRISIS - ARE YOU AN ESSENTIAL BUSINESS?


Passing this on:


Dear Industry Partner:

Thanks for reaching out to Empire State Development (ESD).

The COVID-19 pandemic is unprecedented. It has upended the lives and daily routines of millions of people across the United States – particularly in New York, which has more reported cases of coronavirus than any other state. New York’s business community has felt its dramatic impact, with an extraordinary, temporary closure in order to prioritize the health and safety of the public. As you know, to slow the spread of the virus, businesses were required to reduce their onsite workforce by 100% as of 8 p.m. on Sunday, March 22, 2020. Only organizations and entities that are deemed essential by Executive Order 202.6 are exempt from these restrictions.

The Executive Order also directed ESD to establish guidance outlining which businesses are considered essential. That guidance has been updated, but is subject to change as the State adapts its response to combating COVID-19. Moving forward, any business and organization that does not fall within the list of essential business industries but believes they should be designated as an essential business must refer to the guidance for this process.

Please note, the volume of requests for essential business designation requests has been overwhelming, in many cases from businesses in industries that are clearly listed as essential by the Executive Order. For example, New York State considers “hotels, and places of accommodation” as essential businesses, yet ESD continues to receive hundreds of requests from hotels and motels for unnecessary essential business designation.

ESD wants to reinforce several key messages:

·    If your business function is listed as essential, then there is nothing else you need to do. You do not need to contact ESD for affirmative documentation or email confirmation and, due to volume, ESD will be unable to formally confirm to essential businesses that they are, in fact, essential. Given that you are already essential, you will not receive any further communication from ESD.
·    With respect to business or entities that operate or provide both essential and non-essential services, supplies or support, only those lines and/or business operations that are necessary to support the essential services, supplies, or support are exempt from the restriction.
·    If your business, trade or industry is not on the list, then you are not an essential business. If, however, you believe it is in the best interest of the state to have your workforce continue in order to properly respond to the COVID-19 emergency, you should refer to the guidance for further information. 

ESD’s website provides other up-to-date resources and guidance, such as Small Business Administration (SBA) application assistance.

We encourage everyone in the business community to follow recommended best practices provided by the Centers for Disease Control (CDC) on its website regarding social distancing, disinfecting and cleaning to help prevent community spread.

Thank you for your cooperation. We look forward to a continued, productive partnership and ensuring New York’s economy emerges from the COVID-19 pandemic stronger than ever. 

***

FOR THIS HEALTH CRISIS - MORE MORTGAGE RELIEF FOR NY



"The Department of Financial Services (DFS) today issued an emergency regulation requiring that, during a specified time, New York State regulated financial institutions provide residential mortgage forbearance on property located in New York for a period of 90 days to any individual residing in New York who demonstrates financial hardship as a result of the COVID-19 pandemic, subject to the safety and soundness requirements of the regulated institutions. The emergency regulation also requires that, during a specified time, New York regulated banking organizations eliminate fees charged for the use of Automated Teller Machines (ATMs) that are owned or operated by the regulated banking organization, overdraft fees, and credit card late payment fees for any individual who demonstrates financial hardship as a result of the COVID-19 pandemic, subject to the safety and soundness requirements of the regulated banking organization. This emergency regulation is adopted pursuant to Governor Andrew M. Cuomo’s Executive Order No. 202.9"

For more information see: https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202003241

FOR THIS HEALTH CRISIS - SMALL BUSINESSES HAVE RENT ISSUES



               If you are a small business owner, this health crisis and the shutdowns makes rent payments an issue. And many small businesses ask about the force majeure clause.

               Force majeure means "superior force" and can be a clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague, or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract. In practice, most force majeure clauses do not excuse a party's non-performance entirely, but only suspend it for the duration of the force majeure.

               For example, here is one force majeure clause I consulted on regarding an event contract:

“Neither Event Producer nor Organization shall be held liable or responsible if the failure to perform the services described herein arises out of causes beyond the control and without the fault or negligence of either Event Producer or Organization. Such causes may include but are not restricted to Acts of God or the public enemy, unlawful acts, acts of the city in either its sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes. freight embargoes and unusually severe weather; but in every case the failure to perform must be beyond the control and without the fault or negligence of Event Producer or Organization. Force Majeure specifically excludes both financial inability to perform and economic conditions, and does not excuse an obligation to make any of the payments specified hereunder”

Certainly, the coronavirus would apply here as an epidemic or quarantine restriction. Such a clause is typical in event contracts. But let us deal with the issue at hand. You have a small business that is either severely curtailed or shut down due to the Governor’s orders. No income and the rent is due.

               Not all leases contain a force majeure clause. For example, The Association of the Bar of the City of the City of New York, Committee on Real Property Law, Model New York City Retail Lease does not contain such a clause. Instead, section 23.3 provides:

Neither Landlord nor Landlord’s managing agent, if any, shall be liable for any injury, damage or loss to Tenant, Tenant’s Property, Tenant’s Work, Tenant’s business or to any other person or property resulting from any cause, except to the extent caused by the negligence or willful misconduct of Landlord, Landlord’s managing agent, if any, or their respective employees, agents or contractors, subject to Section 13.4. 

And section 23.8 of the model form provides:

Tenant’s obligations shall not be waived, delayed or otherwise affected in any manner, and Landlord shall have no liability, if Landlord is unable to comply with, or is delayed in complying with, any of Landlord’s obligations under this lease by reason of any strike, labor trouble, accident, war, government action, Laws or other cause beyond Landlord’s control.

               But some leases do contain a force majeure clause. Commercial landlords and tenants should closely review their lease documents to determine (1) whether, and to what extent, the COVID-19 events, declarations and restrictions qualify as a force majeure performance excuse under the applicable lease, and (2) any applicable requirements for providing notice of nonperformance under that lease.

               The question I am being asked by both landlords and tenants is whether the force majeure provisions will excuse the timely payment of rent. Recently, in the NYLJ article, “Analyzing Force Majeure Clauses in Light of the Coronavirus Outbreak”, Justin T. Kelton.  NYLJ March 19, 2020, the author noted:

““Generally, a force majeure event is an event beyond the control of the parties that prevents performance under a contract and may excuse nonperformance.” Beardslee v. Inflection Energy, 25 N.Y.3d 150, 154 (2015) (citation omitted). Force majeure clauses excuse non-performance where the reasonable expectations of the parties have been frustrated due to circumstances beyond their control. See Kel Kim v. Cent. Mkts., 70 N.Y.2d 900, 902, (1987); United Equities v. First Natl. City Bank, 52 A.D.2d 154, 157 (1976), affd. 41 N.Y.2d 1032 (1977). Under New York law, force majeure clauses are “to be narrowly construed.” Reade v. Stoneybrook Realty, 63 A.D.3d 433, 434 (1st Dept. 2009).

Moreover, New York courts impose a significant hurdle on a party seeking to assert a defense of force majeure: “only if the force majeure clause specifically includes the event that actually prevents a party’s performance will that party be excused.” Reade, 63 A.D.3d at 434 (citing Kel Kim Corp. 70 N.Y.2d at 902-903). Where the parties to a written agreement do not include a force majeure clause, there is no basis for such a defense. See General Electric Company v. Metals Resources Group Ltd., 293 A.D.2d 417 (1st Dept. 2002) (“The force majeure doctrine is no more helpful to defendant. The parties integrated agreement contained no force majeure provision, much less one specifying the occurrence that defendant would now have treated as a force majeure, and, accordingly, there is no basis for a force majeure defense.”).

As is the case with all contractual provisions, New York courts interpreting a force majeure clause seek to effectuate the parties’ intent. “[W]hen the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure.” Route 6 Outparcels v. Ruby Tuesday, 88 A.D.3d 1224, 1225 (3d Dept. 2011). Therefore, courts interpreting a force majeure provision seek to determine, inter alia, the intended breadth and scope, and whether the clause was designed to protect one party, or both. Id. (finding that clause was “expansive in scope” and “affords protection to both plaintiff and defendant”).”

               The most recent Court of Appeals case involving a lease was Beardslee v. INFLECTION, LLC, 25 NY 3d 150 - NY: Court of Appeals 2015, but the court was deciding the obligations under an oil and gas lease. The court first noted that the Force Majeure clause had to be construed in accordance with regular contract principles:

“Under New York contract jurisprudence, the intent of the parties controls and if an agreement is "complete, clear and unambiguous on its face[,] [it] must be enforced according to the plain meaning of its terms" (Greenfield v Philles Records, 98 NY2d 562, 569 [2002]). As this Court has indicated on numerous occasions, "[c]ourts may not `by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing'" (Riverside S. Planning Corp. v CRP/ Extell Riverside, L.P., 13 NY3d 398, 404 [2009], quoting Reiss v Financial Performance Corp., 97 NY2d 195, 199 [2001]). Moreover, the analysis should take into account that oil and gas leases "stand on an entirely different basis from any other leasehold agreements" (Conkling v Krandusky, 127 App Div 761, 766 [4th Dept 1908], citing Eaton v Allegany Gas Co. [Ltd.], 122 NY 416 [1890]). Such leases are "made in the context of a highly technical industry, which employs distinct terminology used by those in the business" (Wiser, 803 F Supp 2d at 117). For these reasons, an agreement for the production of oil and gas must be construed with reference to both the intention of the parties and the known practices within the industry (see generally 3 Howard R. Williams & Charles J. Meyers, Oil and Gas Law §§ 601, 603, 605 [2003 ed]; 1, 2 W.L. Summers, The Law of Oil and Gas, chs 7, 10, 11 [Perm ed 1959]).”

(emphasis supplied)

               In this case, the court was construing the effect of the leases term clause, also known as a habendum clause, which establishes the primary and definite period during which the energy companies may exercise the drilling rights granted by the leases. The energy company tenant argued that the term was extended under the force majeure clause because of the governor’s executive order delaying fracking permits. What is noteworthy is:

               1. The court did not address the question of whether the State's Moratorium amounted to a force majeure event.

               2. The court did hold that under any force majeure event, the force majeure clause did not modify the habendum clause and extend the primary terms of the lease:

“The habendum clause in the leases does not incorporate the force majeure clause by reference or contain any language expressly subjecting it to other lease terms (see Wiser, 803 F Supp 2d at 121 ["where . . . the language of the habendum clause clearly makes that provision `subject to' other provisions in the agreement. . . the life of the lease may be subject to modification"]; see also Sun Operating Ltd. Partnership v Holt, 984 SW2d 277, 286 [Tex App 1998]). Moreover, the language in the force majeure clause stating that "the time of such delay or interruption shall not be counted against Lessee" does not refer to the habendum clause with specificity. Thus, the habendum clause is not expressly modified or enlarged by the force majeure clause.”

In fact, the court stated:

“Our holding is consistent with out-of-state "oil" jurisdictions, in which courts, applying similar contract principles, have held that language identical or similar to the force majeure clause at issue here cannot extend the primary term set forth in the habendum clause (see Gulf Oil Corp. v Southland Royalty Co., 496 SW2d 547, 552 [Tex 1973]; see also San Mateo Community Coll. Dist. v Half Moon Bay Ltd. Partnership, 65 Cal App 4th 401, 412, 76 Cal Rptr 2d 287, 293 [1998]; Natural Gas Pipeline Co. of Am. v Zimmer, 447 F Supp 66, 70 [ND Tex 1977], affd 576 F2d 106 [5th Cir 1978]; cf. Sun Operating Ltd. Partnership v Holt, 984 SW2d 277, 282-283 [Tex App 1998]). And, as observed by our sister courts, had the energy companies intended for the habendum clause to be subject to other provisions of the contract, they could have expressly so indicated (see Kirker v Shell Oil Co., 104 Cal App 2d 497, 503, 231 P2d 905, 909 [1951]).”


            So, it appears that the mere presence of a force majeure clause does guarantee an excuse of performance – it is a question of contract interpretation utilizing the regular rules of contract interpretation such as (1)  unambiguous provisions of a contract must be given their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court as gleaned from the four corners of the document itself, provided that its terms are clear and unambiguous and (2) whether an agreement is ambiguous presents a question of law for the Court and ambiguity exists when specific language in the contract is susceptible of two reasonable interpretations. Other arguments that attorneys have discussed include contract principles of impracticality of performance, frustration of purpose as well as unconscionability. Thus the small business owner may have these questions:

               1. Question: Should a tenant be aggressive and start an action on the issue of rent?  A commercial lease was involved in LIDC I, LLC v. SUNRISE MALL, 46 Misc. 3d 885 - NY: Supreme Court 2014. The tenant sought to Yellowstone[1] the landlord’s default notice for non-payment stemming from delays in construction of three restaurants plaintiffs planned to open in defendant's shopping center as a result of the Town’s stop work order. The injunction was denied. The court stated that it found that “the Town's actions were sufficient to invoke the force-majeure clause as a result of governmental action…However, it also finds that rent is excepted under the leases' force-majeure clause, and nonpayment of rent is the stated default “ Thus, the court held that the tenant “have no operating businesses generating income, and have not pointed to any other independent source of funds, or that access to sufficient funds to cure the rent default is imminent. The court accordingly finds that they have failed to satisfy that prong of the required showings for a Yellowstone injunction that they are prepared and have the ability to cure the rent default. (Definitions Personal Fitness, Inc. v 133 E. 58th St. LLC.) The application for such an injunction is therefore denied.”

               2. Question: Should a tenant be wait until a non-payment is proceeding?  There is a moratorium on evictions that for now extends to mid-June. And under the June 2019 Act, commercial tenants may have the benefits of the new provisions regarding notice and payment up to judgment. But see 41 E. 11th ST., LLC v. WSIP REALTY CORP., 2020 NY Slip Op 20017 - NY: City Court, Civil Court 2020:

“Certainly there are provisions of the act that implicate both residential and commercial tenancies (see eg RPAPL § 711(2) which changed rent demand from five days to 14 days), however, there is no reason for the courts to widen the scope of this specific provision aimed at residential tenancies to commercial tenancies that involve sophisticated parties in business transactions. The reluctance of courts to assert themselves in such transactions was recently reaffirmed by the Court of Appeals when the court declined to rule a provision in a commercial lease waiving the right to a declaratory judgment as unenforceable. The court held

"In keeping with New York's status as the preeminent commercial center in the United States, if not the world, our courts have long deemed the enforcement of commercial contracts according to the terms adopted by the parties to be a pillar of the common law. Thus, "[f]reedom of contract prevails in an arm's length transaction between sophisticated parties. . ., and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain" (Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 695 [1995])."

159 MP Corp. v. Redbridge Bedford, LLC, 33 NY3d 353, 359, reargument denied, 33 NY3d 1136 (2019). The court concluded that "(e)ntities like those party to this appeal are well-situated to manage their affairs during negotiations, and to conclude otherwise would patronize sophisticated parties and destabilize their contractual relationships...".

Given the fact that RPL § 235-e refers specifically to residential tenancies and not to commercial tenancies, given the clear intent of the Housing Stability and Tenant Protection Act of 2019 to extend protections to residential tenants and the general policy of this state to allow commercial transactions without undue interference, the court finds that RPL § 235-e(d) is not applicable to commercial tenancies and respondent's first and only affirmative defense is dismissed.”

               3. Question: What do other attorneys recommend? Here are some thoughts and opinions I received that came from various list serves, etc.:

               A.  “1. Do I Have Any Rights To Stop Paying Rent? The truth is, every lease is different. Your lease may have specific provisions for circumstantial deferred rent or rent abatement during times of material business interruption. Many companies have business interruption insurance for this reason, but to date this Coronavirus pandemic is not being covered as such by most insurance carriers. If you do have these provisions in your lease, you should speak to your landlord about exercising these rights.  If you don’t, we would recommend the following.  1. ask your landlord for 3-6 months of rent abatement now that will then be tacked on to the end of your lease. 2 ask your landlord for 3-6 months of rent abatement, with higher rent in the months following so they are made whole over a period of time. 

               2. How Do I Communicate With My Landlord? Do you Help with that? Now is the time to communicate with your landlord. Landlords are humans, too—yes they have to work within their cash flow confines too, but they understand this pandemic as much as anyone else and value communication and cooperation. Step one is to review and understand your current lease and what rights you have within that. Step two is to strategize on how to communicate with your landlord. Step three is to open a dialogue with your Landlord and come to a solution that benefits you now when you need it most. 

               3. Should I talk to an attorney? Do you have a recommendation? Before you plan and communicate with your landlord, you want to make sure you really understand your rights within your lease, and your rights as a tenant given the multiple Executive Orders and policy changes around rent payments and Landlord / Tenant relationships. Many real estate attorneys we have spoken to are happy to do a legal review off the clock at no cost to you in the hope.

                              B. And other suggestions:

“1.          The only possible solution I could think of other than deferring payments would to advise that there is a moratorium on evictions but say that you are serving predicate notice(s) anyway. I think it would be important not to acknowledge that the landlord is holding off out of good will, because that could vitiate the predicate notice. 

2.            In 2008 and 2009, a lot of landlords were working with tenants, so I suspect something similar, but most of that happened within the context of nonpayment proceedings. Giving people rent credits now seems a little premature.  The courts and eviction proceedings might be up and running by May 2020. So if you need to start a case in May just to work out a payment plan, that makes more sense for landlords. A commercial tenant asking for a 3 month concession when restaurants/bars have been closed for a week seems a bit opportunistic to me.  

3.            "Force majeure"

4.            What the tenant offered to your client is very fair.  What I have been telling clients to do (and which I have done with the one property I manage) is to defer the rent until life begins to return to normal and then have a frank discussion with the tenant about extending the lease or allowing the tenant to pay the deferred rent over the balance of the lease term or possibly forgiving it under the right circumstances. From a practical standpoint, it pays the landlord to be accommodating and perhaps build some good will.  For all intents and purposes the landlord would not be able to default of evict the tenant for a longtime so it pays to be nice.“


ADDITION TO ABOVE:

See the dissent in Belgium v. Mateo Prods., Inc., 138 AD 3d 479 - NY: Appellate Div., 1st Dept. 2016:

“KLT moved for summary judgment dismissing plaintiff's breach of contract claim based on the contract's force majeure clause, which it raised as an affirmative defense. The clause states: "If ARTIST is unable to perform in the event of sickness or accident then this will be considered `Force Majure' [sic] by ARTIST and ARTIST shall not be subject to any liability ... Monies will be returned for any nonperformance that is not covered under the scope of force `Force Majure' [sic]."

"The purpose of a force majeure clause is to limit damages in a case where the reasonable expectation of the parties and the performance of the contract have been frustrated by circumstances beyond the control of the parties" (United Equities Co. v First Natl. City Bank, 52 AD2d 154, 157 [1st Dept 1976], affd 41 NY2d 1032 [1977]). "[W]hen the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure" (Route 6 Outparcels, LLC v Ruby Tuesday, Inc., 88 AD3d 1224, 1225 [3d Dept 2011] [internal quotation marks omitted]).

On its motion for summary judgment, KLT bore the burden of establishing its force majeure defense (see Latha Rest. Corp. v Tower Ins. Co., 285 AD2d 437 [1st Dept 2001]; see also Phillips Puerto Rico Core, Inc. v Tradax Petroleum Ltd., 782 F2d 314, 319 [2d Cir 1985]). As the majority finds, KLT did not sustain its burden in that it failed to submit any objective evidence to substantiate Akon's self-serving claim that he was unable to perform due to sickness, such as the hospital records of his alleged visit to an emergency room where he claimed he was given antibiotics and painkillers, even though those records were exclusively within the control of Akon and KLT, which is solely owned by Akon.

Nevertheless, the majority finds that plaintiff did not satisfy its burden of proof on its cross motion because it failed to establish that Akon was able to perform or that he was not unable to perform due to sickness. On the record before us, I cannot agree. As shown below, plaintiff's submissions established its prima facie entitlement to summary judgment and Akon failed to produce any objective evidence supporting his force majeure defense, including the aforementioned medical records relating to the alleged treatment of the condition that purportedly rendered him too sick to perform.”


ANOTHER ADDITION:

Some attorneys have suggested some language in current agreements:

One attorney was faced with this clause in a service agreement:

“I hereby, on behalf of myself and ___________________________________________________(“Contractor”) make the following representations and warranties to _______________________________ and the Owner of the Premises: that throughout the duration of any work conducted at the Premises by the Contractor and its subcontractors:

1.            Neither I, nor anyone else to be or hereafter engaged at the Premises thru the Contractor or employed by the Contractor, have been in any of the following countries within the last 14 days:  China, S Korea, Japan, Italy, Iran, and any other country or area of the United States reported by the Centers for Disease Control (https;//ww.cdc.gov/coronavirus/2019-ncov/index.html) as having "widespread sustained" or "sustained community" spread of the coronavirus like New Rochelle.

2.            Neither I, nor anyone else to be engaged at the Premises thru the Contractor or employed by the Contractor, have had close contact with anyone who has been in one of the countries or locations listed above within the last 14 days;

3.            Neither I, nor anyone else to be engaged at the Premises thru the Contractor or employed by the Contractor, have been directed to quarantine, isolate, or self-monitor at home for COVID--19 by any doctor, hospital or health agency;

4.            Neither I, nor anyone else to be engaged at the Premises thru the Contractor or employed by the Contractor, have been diagnosed with or have had close contact with anyone diagnosed with COVID-19, and

5.            Neither I, nor anyone else to be engaged at the Premises thru the Contractor, have or had flu-like symptoms now or within the past 14-days.

Contractor acknowledges and agrees to (i) immediately notify Property Manager of any change in circumstance that should render any of the above representations and warranties untrue or false in any respect during the course of the work conducted by the Contractor at the Premises, and (ii) that Contractor  shall restrict and remove any person  engaged at the Premises thru the Contractor or employed by the Contractor from the Premise who shall cause the Contractor to violate the above representations.”

One attorney has suggested the following for sale of land:

“Seller and Purchaser agree that the Coronavirus (COVID-19) pandemic is impacting real estate transactions, transaction related service providers and consumers. There is a possibility that transaction related service providers such as lenders, title/abstract companies, appraisers, home inspectors and attorneys may be providing limited or no services as a result of COVID-19 issues. COVID-19 issues may include, but are not limited to: emergencies declared by the government, travel restrictions, mandatory closures or reduction of staff at transaction related service providers, quarantine, exposure to or contraction of COVID-19.

If a COVID-19 issue should arise making compliance with the terms of the Contract impossible or improbable as a result of such COVID-19 issue, the Seller and Purchaser agree to the following modifications of the Contract:

1. Seller and Purchaser agree to extend all deadlines in the Contract by ____ Days after the end of the COVID-19 issue (Extension Date). Should the COVID-19 issue continue _____ Days after the closing date set forth in the Contract, Seller and/or Purchaser has the right to terminate the Contract. Such termination must be made in writing to the other party and other individuals/entities requiring notice using the same method(s) of notice as contained in the Contract.

2. OPTIONAL If checked: Purchaser and Seller agree, notwithstanding that Purchaser may have removed their financing contingency, that if Purchaser is unable to fund their loan and close due to Purchasers loss of income from a COVID-19 issue, then Seller and/or Purchaser has the right to terminate the Contract. Such termination must be made in writing to the other party and other individuals/entities requiring notice using the same method(s) of notice as contained in the Contract.

3. In the event that the Contract is terminated under Paragraph 1 or 2, the Deposit shall be returned to the Purchaser.

4. Other: _____________________________________________________________________________________________ ____________________________________________________________________________________________________

All other terms and conditions of the Contract remain in full force and effect. Dated: _______________________________________”





[1] The court noted: “A Yellowstone injunction is intended to maintain the status quo so that a commercial tenant, threatened by a termination of its lease, can protect its leasehold investment by obtaining a stay tolling the cure period and avoid a forfeiture of its lease. (Graubard Mollen Horowitz Pomeranz & Shapiro v 600 Third Ave. Assoc., 93 NY2d 508 [1999]; Barsyl Supermarkets, Inc. v Avenue P Assoc., LLC, 86 AD3d 545 [2d Dept 2011].) In order to qualify for the injunction, the tenant must demonstrate that (1) it holds a commercial lease, (2) it received a notice of default, a notice to cure, or a threat of termination of the lease, (3) it made its request for the injunction prior to both termination of the lease and the period to cure, and (4) it is prepared and has the ability to cure the alleged default by any means short of vacating the premises. (Graubard; Barsyl Supermarkets, Inc.; see also Trump on the Ocean, LLC v Ash, 81 AD3d 713 [2d Dept 2011].)

The required showings are less stringent that what is required for a preliminary injunction (Trump on the Ocean), and a demonstration of probable success on the merits is not a prerequisite for relief. (WPA/Partners v Port Imperial Ferry Corp., 307 AD2d 234, 237 [1st Dept 2003].) However, all the required showings must be made, including the ability to cure a rent default, if that is the basis of the landlord's action against the tenant, or the injunction will be denied. (Definitions Personal Fitness, Inc. v 133 E. 58th St. LLC., 107 AD3d 617 [1st Dept 2013].)”

NOTE AS OF MARCH 30, 2020: This discussion was recently sent to me: Re: impossibility of performance:


Contract Law:  The COVID-19 Shutdown and the Impossibility of Performance Defense



As we are all painfully aware, Governor Cuomo has issued an Executive Order directing that all “non-essential” businesses statewide terminate their in-office personnel functions.  In addition to the public health and policy issues that arise from this Order, a myriad of legal questions also follow.  While there are no concrete answers to many of these questions given the unprecedented nature of the COVID-19 pandemic, it is helpful to look to caselaw to anticipate how these issues may play out in the business disputes that are sure to emerge from this situation.  One such issue is the applicability of the defense of impossibility of performance that may be asserted against a party seeking to enforce its contractual rights against another party that has failed to perform its obligations. 

General contract law in New York (and most places) provides “that once a party to a contract has made a promise to perform, it must follow through or be liable for damages, even when unforeseen circumstances make that performance burdensome.”[i]  The defense of impossibility of performance has been typically applied very narrowly in light of the view that a contract, when distilled down, is really just an arm’s length allocation of risks between the parties.[ii]  As a result, the Court of Appeals has recognized that this defense should only be available in “extreme circumstances” and “only when the destruction of the subject matter of a contract or the means of performance makes performance objectively impossible.”[iii]  In addition, the event that produced the impossibility must not have been something that could have been foreseen or guarded against in the contract.[iv]

In a general sense, the COVID-19 pandemic was not foreseeable to parties that entered into contractual agreements through most of 2019.  However, can the same be said about contracts that were entered into after the first case of COVID-19 was reported in China around December 31, 2019 or after the first case was reported in the United States around January 21, 2020?[v]  These questions will undoubtedly have to be answered by the courts as businesses become unable to perform their contractual obligations as a result of the COVID-19 pandemic and the ensuing governmentally-ordered restrictions.

One case resulting from a governmental act occurred in Orange County, New York when the purchaser in a sale of real property contract attempted to rescind the contract after the relevant jurisdiction enacted a moratorium on subdivision approvals and then enacted a revised zoning code that prohibited the type of subdivision contemplated in the agreement.[vi]  The Appellate Division, Second Department affirmed the trial court’s dismissal of the action and held that it was not unforeseeable that the town would change its zoning code in a manner rendering the planned subdivision impossible.[vii]  The court partially relied on its holding in an earlier case that found that sophisticated developers should either anticipate such a change or guard against it in the terms of the underlying contract.[viii]

Similarly, when a prospective purchaser attempted to use the impossibility of performance defense based on the loss of nearly of all of his personal assets as a result of the Bernie Madoff scandal, the court found that the default should not be excused and that the seller was entitled to retain the purchaser’s down payment as liquidated damages for the breach.[ix]

In a case concerning an executive order, the Appellate Division, First Department dealt with a company that had purchased insurance against an air traffic controller’s strike that would disrupt its necessary distribution chain.[x]  The policy provided that there would be no liability to the carrier unless the strike continued for seven days.[xi]  When a strike eventually occurred, it was unforeseeably terminated by declaration of President Reagan firing all of the air traffic controllers three days after the strike began.[xii]  Although the court found that there have been circumstances where governmental acts have truly made performance impossible, and that there was no way that the company could have reasonably anticipated that the President would end the strike by firing all of the air traffic controllers, the facts here did not constitute a sufficient impossibility of performance defense.[xiii]  Instead, the court relied on a strict interpretation of the contractual provision as written: three is less than seven.[xiv]

This is not to say that there is not law to support the use of the defense when an action truly renders performance impossible.  The Appellate Division, First Department also dealt with a transportation company that had contracted with the City of New York to furnish, among other things, tugboat services for sanitation barges.[xv]  Subsequently, there was a portwide strike and there was no practical way for the company to provide the contracted for tugboat services to the City.[xvi]  As a result, the court found that the transportation company may not be liable to the City for its failure to provide the services as result of the impossibility of its performance and it reversed the trial court’s grant of summary judgment in favor of the City.[xvii]

Finally, in a case arising from the tragedy that took place on September 11, 2001, a court held that the untimely cancellation of an African safari could be excused by the impossibility of performance defense based on a claim that timely communicating the cancellation from Staten Island was impossible in the immediate aftermath of the terrorist attacks.[xviii]

Ultimately, the underlying facts leading to the assertion of an impossibility of performance defense will be determinative as to its potential success.  It seems clear that the financial consequences of the COVID-19 pandemic will not, standing alone, be enough to excuse performance.  However, if the performance is truly rendered impossible by the closure of a business that cannot operate as a result of the Governor’s stay-at-home order, then it may be possible that contractual performance will be excused, or, at the very least, the time to perform tolled until performance is no longer impossible. 



[i]  See Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900, 902 [1987].
[ii]  See id.
[iii] See id.
[iv]  See id. (citing, inter alia, 407 E. 61st Garage v. Savoy Fifth Ave. Corp., 23 N.Y.2d 275 [1968]).
[vi] See RW Holdings, LLC v. Mayer, 131 A.D.3d 1228, 1229 [2d Dep’t 2015].
[vii] See id.at 1230.
[viii] See id. (citing Pleasant Hill Developers, Inc. v. Foxwoods Enters., LLC, 65 A.D.3d 1203, 1206 [2d Dep’t 2009]).
[ix] See Sassower v. Blumenfeld, 24 Misc.3d 843, 845-46 [Sup. Ct. Nassau County 2009]. 
[x] See Metpath Inc. v. Birmingham Fire Ins. Co. of Penn., 86 A.D.2d 407, 408 [1st Dep’t 1982].
[xi] Id. at 409-410.
[xii] Id. at 408.
[xiii] See id. at 411-413. 
[xiv] See id. at 413-414.
[xv] See City of N.Y. v. Local 333, Marine Division Int’l Longshoreman’s Assoc., 79 A.D.2d 410, 411 [1st Dep’t 1981].
[xvi] Id. at 413. 
[xvii] See id. at 414.
[xviii] See Bush v. ProTravel Int’l, Inc., 192 Misc.2d 743, 7753-754 [Sup. Ct. Richmond County 2002].
2]."