COVID Refund Due to Bat Mitzvah Client Per Catering Contract, Court Rules

A recent case, Lord v. Limited Liab. Co., 2021 NY Slip Op 50512(U) (NY Sup. Ct. Westchester County June 2, 2021), involves a scenario that is increasingly commonplace in light of the COVID-based lockdowns beginning in 2020: patrons enter into a contract with a venue/caterer to provide the location, catering, staff, etc. for an event; patrons provide a down payment/deposit; prior to the scheduled date, the caterer informs the patrons that the event could not be held at their venue on the planned date/time due to COVID-19; patrons request refund; caterer refuses.

Here, the patrons sue the caterer, and win; the court grants the plaintiffs’ motion for summary judgment.

At issue was paragraph 23 of the parties’ contract, which reads:

Caterer has the right to substitute another room in lieu of the room contracted for, if such room is unavailable due to fire, water damage, accident, catastrophe or due to any other circumstances including unintentional errors in booking a room previously contracted for. If no room is available, Caterer shall have the option of cancelling this contract without further liability, or transferring the affair to other premises with Patron’s approval in which event contract shall remain in full force and effect.

Plaintiffs argue, inter alia, that this provision must be treated as having resulted in a cancellation which mandates a refund of the deposit and that the aspect of the provision giving the caterer the unilateral right to cancel at any time “due to any circumstances” renders the contract unenforceable as unconscionable, illusory, and based on a failure of consideration; defendant argues, inter alia, that plaintiffs have an obligation to reschedule the party, and their refusal to do so constitutes a breach of contract.

The court sided with plaintiff, primarily on the basis of contract paragraph 23:

In addition to giving the Caterer the right to substitute another room if the facility finds itself unable to provide the particular room it promised, whether due to outside forces or its own actions, the provision recites that the Caterer has the option to cancel the contract if it has no other available rooms to provide. However, the use of the word “option” there is misleading, since the only other option the paragraph provides for is one that requires the Patron’s approval. In circumstances where the Patron’s approval is not obtained, and the Caterer is unable to provide any room in the promised location, the only option available to the Caterer is cancellation of the contract. That is essentially the circumstances facing the Caterer here.

As was previously observed regarding contract paragraphs 13 and 16, nothing in paragraph 23 gives the Caterer the option of treating the catastrophic circumstance that caused its inability to provide the party venue as entitling it to the postponement and rescheduling of the event by the Patrons. Indeed, while defendant refers to these circumstances as a “postponement” rather than a “cancellation” of the event, the contract nowhere uses any variation of the word “postpone.”

This Court therefore agrees with plaintiffs, that the effect of contract paragraph 23 is that if the Caterer is unable to make either the selected room or any other room available for the intended event, whether the unavailability of those rooms is a catastrophe outside the Caterer’s control, or due to the Caterer’s actions, unless the Patron agrees to some other arrangement, then the only “option” is the cancellation of the contract. Nothing in the contract supports defendant’s position that the Patron has a contractual obligation to reschedule the event for a date years later.

Alternatively, the court held that the contract was unenforceable:

[T]he one-sided nature of paragraph 23 creates an impermissible inequity. That paragraph allows the Caterer to cancel the contract at any time by informing the Patron that the reserved room is “unavailable” — not necessarily as a result of events out of the Caterer’s control, but also possibly based on the Caterer’s conduct or choice, such as a belated discovery of a double-booking, or even, theoretically, on the Caterer’s last-minute receipt of a more advantageous offer from a different Patron — if it has no alternative spaces available. This, in effect, gives the Caterer the unilateral ability to cancel a Patron’s contract at any time for its own advantage.

An agreement is illusory, and therefore unenforceable, if it lacks mutuality of obligation. There is no mutuality of obligation where one party can terminate his promise at will. In Dorman, the plaintiffs, but not defendants, ha[d] the option to break the agreement” leading the Court to conclude that the agreement was “illusory for lack of mutuality of obligation,” since plaintiffs did not, in effect, bind themselves to do anything. (Cleaned up; citations omitted.)

Based on this, the court held that, “as a matter of law, under the terms of the parties’ contract, the contract was cancelled when the event could not be held as scheduled due to the COVID-19 pandemic, and that therefore, defendant had a contractual obligation to refund plaintiffs’ deposit” such that plaintiffs were entitled to summary judgment on their cause of action for breach of contract.

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