Court Rejects Impossibility Defense Based on Change in Taxi Medallion Market

On July 30, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Capital One Equip. v. Deus, 2018 NY Slip Op 31819(U), rejecting an impossibility defense to a breach of contract claim based on a change in the market for taxi medallions, explaining:

Defendants rely on Restatement (First) of Contracts § 454 to argue that performance is impossible when there is extreme and unreasonable difficulty, expense, injury, or loss. According to the Restatement, impossibility is synonymous with impracticability. Defendants claim the change in economic circumstances has made the defendants' repayment of the loan impossible. However, New York courts have held differently. In Sassower v. Blumenfeld, performance of a contract is not excused where impossibility or difficulty of performance is occasioned only by financial difficulty or economic hardship, even to the extent of insolvency or bankruptcy. Impossibility cannot rely upon the amounts lost, the nature of lost investments, or the actual state of current finances and assets. Financial loss as a whole cannot be the sole reason to claim in possibility. Economic hardship alone cannot excuse performance; the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.

Defendants base the defense of impossibility upon the idea that, due to the economic change on the medallion and taxi industry of New York by ride sharing applications like Uber and Lyft, there is an impossible hurdle for the defendants to overcome, making the repayment of the loan impossible. Since the defendants rely upon an argument of economic impracticability of repaying the loan, the standard for impossibility is not met.

(Internal quotations and citations omitted).

It is easy to sympathize with people like the defendant who got caught up in a drastic change to the transportation market, but one of the reasons parties often choose to have their contracts governed by New York law is that courts generally enforce agreements as written, even if changes in economic circumstances turn what was a good bargain into a bad one. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.