Contracts

If my business was physically destroyed in the WTC disaster, do my contracts for goods and services need to be performed?

It depends. A party will be relieved from its obligation to supply goods or perform services if, without the party's fault, performance of the contract has become impossible. However, the impossibility must be "objective," in the sense that no one can perform the contract. For example, a contract for cleaning offices in the World Trade Center would be impossible to perform. If reasonable alternative means for performance of the contract are available, impossibility likely will not apply. However, other legal doctrines, as described below, may apply.

My business is in the affected area and has not been physically affected by collapse or relief work; however, my business has deteriorated substantially after September 11. Do my contracts for goods and services need to be performed?

Yes. Typically, impossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance renders performance impossible. In addition, a party may be excused from performing its contractual obligations if performance is found to be impracticable. However, if a party has a choice of ways to perform the obligations and only one option is precluded, that is not generally considered impracticable, even if the remaining option is more burdensome or more expensive.

If my business has been taken over by police/fire or other state agency for relief work, are contracts for future performance excused?

Generally, yes. When the government, through its sovereign power, intervenes for the preservation of the country or makes performance of a contract impossible, the contracting parties generally are relieved of further liability. Because the test is whether a change renders performance impossible, the mere fact that a contract has become increasingly difficult and expensive to perform because of a new law or regulation does not excuse performance. In addition, government intervention may only provide for a delay in performance rather than a permanent excuse.

Does a "force majeure" clause in a contract that my business has with another party automatically relieve the other party of its liability under the contract?

No. A "force majeure" clause is a provision in a contract that excuses a party to the contract from performing under the contract because of the occurrence of an event beyond the party's control. The other party may or may not be liable depending on the provisions of the force majeure clause. A party may excuse itself from liability under a force majeure clause only by showing that the event preventing its performance was contemplated by the force majeure clause. A force majeure clause may be drafted broadly (to include a few events such as an "act of war" and a catch-all phrase such as "or other events beyond its control" or "unavoidable causes") or more narrowly (listing the specific events that prevent performance and including only a narrow catch-all).

Even if there were no force majeure clause in the contract, or if the force majeure clause were found not to be broad enough to include the events of September 11, it is possible that a contract will not be enforced due to "impossibility" and related doctrines discussed above.

If the business owner or key employee is dead (or sick), does the business still need to perform contracts of personal service?

No. If the primary purpose of a personal services contract is to permit a specified person to perform in a certain manner, there is an implied intent by the parties to hold each other liable only if the health and life of that party permits continued performance. To be covered under this general rule, the act or acts to be performed must be ones that can be performed only by the particular individual named in the contract. See the Death of a Business Owner section of this handbook.

What happens to advances received from third parties (or given to third parties) where the performance of the contract is excused?

If goods or services are not supplied, advances must be returned.

What if goods that were paid for by the buyer were destroyed before they could be delivered?

In the absence of an agreement to the contrary, risk of loss of goods subject to sale passes in the following manner:

if a contract requires physical delivery of identified goods to a specific destination, title passes on tender of the goods there;
if the contract does not specify a place of delivery, title passes at the time and place of shipment; if delivery is to be made without moving the goods, title passes at the time and place documents of title are to be delivered; and
if no documents of title are to be delivered, title passes at the time and place of contract.

An insurance policy may cover damage or destruction to the goods.

What if I can no longer deliver or accept goods under my contracts? Can someone else perform on my behalf?

A party may be able to delegate or assign its duties or rights under a contract to someone else unless the other party has a substantial interest in having the original promisor perform the acts required by the contract. Similarly, the rights of the buyer or seller may be assigned unless the assignment would significantly change the duty of the other party, increase the burden or risk imposed on him by the contract, or significantly impair the chance of obtaining return performance. Parties delegating or assigning duties will still be liable under the original contract. Many commercial contracts provide that duties of the buyer and seller cannot be delegated or assigned without the prior written consent of the other party.

Is my business liable for damage to a customer's property caused by the WTC disaster?

Is my dry cleaner or laundry business liable for damage to customers' clothing that was in the store?

Is my jewelry/TV/watch repair store liable for damages to customers' property that was in the store for purposes of repair or maintenance?

Probably not. When the owner of personal property (a bailor) delivers the property to another (a bailee) for a particular purpose, with the understanding that the property must be returned to the owner, a bailment contract is formed. In each of the three situations above, a bailment relationship exists for benefit of both parties because the bailee receives compensation and the bailor receives a service. Therefore, the bailee would only be liable to the bailor for property damaged through the bailee's negligence.

Because the relevant legal standard is the bailee's negligence, it is necessary to consider how the property was damaged or lost and what actions the bailee took to protect it. Destruction caused by the WTC disaster would not likely be a breach of the bailment contract. However, if all of the other jewelry stores carried customer merchandise out of the store and one jeweler did not, then that one jeweler may be deemed negligent. In addition, if all dry cleaners except one locked the door when evacuating, that one dry cleaner may be deemed negligent if a customer's clothes were stolen.

If I have equipment that was either leased or purchased on credit and is now destroyed or damaged, am I obligated to continue making payments on the equipment?

This question is usually governed by the terms of the specific contract, lease or credit agreement. In addition, the loss of equipment could be covered by an insurance policy. If the equipment was not covered by an insurance policy, most likely payments must continue to be made.

See the Real Estate section of this handbook for additional information on damage to real property.

Is there a contract if, in response to my offer, the offeree sends an acceptance by mail but I never received it because it was lost or destroyed?

Yes, there is a contract and thus an obligation to perform. Assuming that you, as the offeror, did not specify a mode of acceptance other than mail, acceptance of an offer is effective when the letter is dropped in the mailbox, and not upon receipt. The offeree has the power to accept and close the contract by mailing a letter of acceptance within a time specified in the offer (or within a reasonable time, if no time is stated).

If, for example, my insurance payment premium was due on September 12th and the payment was sent on September 10th, would the policy cover damages that occurred on September 11 even if the payment was not received on the actual due date or was destroyed in the mail?

The "mailbox rule" or "postal acceptance rule" described above also applies to insurance premiums. Assuming that the insurance company requested that the premium be mailed and the premium payment was mailed in a timely manner, the insurance company is obligated to defend and indemnify the insured party.

What if a check was mailed but it was not received?

There are different alternatives depending on the type of check that was lost:

Checks payable from debtor's account: A bank customer has a right to stop payment of any item, including a check, drawn on that customer's account. After the stop payment is made, the debtor may issue a new check without bearing the risk of loss should the bank fail to stop the original check.

Certified checks: Since certified checks are drawn by the bank, the bank is not required to stop payment on lost or destroyed checks and issue replacements unless an indemnity bond of twice the unpaid amount is posted. This serves to protect banks from potential double liability, should a holder of the lost check later present it for payment.

Am I entitled to charge interest or penalty charges if the replacement certified check is not received in a timely manner?

No. The bank's ability to refuse re-issuance of a replacement certified check until a bond is posted may take a considerable amount of time, and thus loss of time value on the amount of the check. However, the statute prevents plaintiffs from seeking interest on the face amount of the check and the cost of the indemnity bond.

How do I go about confirming that my New York City Department of Consumer Affairs or Department of Health license is still in effect, and what do I do if it needs to be renewed or replaced?

For any issues relating to the NYC Department of Consumer Affairs, Department of Health or other licensing issues, contact:

Karen Miller
Department of Consumer Affairs
Director of Legal Affairs
email: millerk@dca.nyc.gov
Telephone: (212) 361-7717

Susan Kassapian
Department of Consumer Affairs
Special Counsel, Legal Affairs
email: kassapians@dca.nyc.gov
Telephone: (212) 487-3961

My business has a City contract on which we have performed but payment on vouchers has been delayed due to the WTC disaster. What action, if any, can I take to expedite processing and payment?

The City may be experiencing delays in making various payments to its contractors because of the dislocation of some government offices and the reallocation of resources brought about by the events of September 11. The first step is to try and contact your contract manager who should have the most current information on their agency's operations. If you cannot locate the contract manager or if they lack information, you can contact the Agency Chief Contracting Officer (ACCO) regarding payment. View a complete list of ACCOs for each City agency online at www.nyc.gov. If payment is still not forthcoming because of a dispute between the contractor and the City, the contractor can file a Notice of Dispute with the ACCO as set forth in the Procurement Policy Board rules. Contractors must continue to supply services during adjudication of the Notice of Dispute or they will be considered in breach of contract.