Brief Fact Summary. A parking garage contracted with a hotel to provide the hotel's patrons with parking. The hotel closed down prior to the end of the parties' contract.
Synopsis of Rule of Law. "[B]y ceasing operation of its hotel, Savoy is not excused, as a matter of law, from obligations under its agreement with the garage, and that there is, at least, an issue of fact as to implied conditions in the agreement."
Issue. "[W]hether the closing of the hotel prior to the expiration of the contract period, due to the asserted financial inability of Savoy to remain in the hotel business, subjects it to continued liability under the contract"?
Held. Yes. The court concluded "by ceasing operation of its hotel, Savoy is not excused, as a matter of law, from obligations under its agreement with the garage, and that there is, at least, an issue of fact as to implied conditions in the agreement." The court first concluded that the Supreme Court's characterization of the relevant contract was not correct, because it was not a requirements contract, but instead a license or franchise. The general rule regarding a license is "revocation of a license granted for a stipulated term may be a breach of contract and may result in the imposition of liability for damages." Accordingly, "if the garage had been granted a license to operate its enterprise on Savoy's premises, liability might persist after sale of the building." The court, however, refused to analyze the contract based on a label, and instead asked whether "this agreement imports an implication that Savoy was obligated to remain in the hotel business, or, better, had undertaken indefeasible obligations for the full term."
• The court observed, "a promise to remain in business will be implied particularly where the promisee has undertaken certain burdens or obligations in expectation of and reliance upon the promisor's continued activity." The court found that a specific clause in the contract stating the "the agreement would terminate upon specified notice to the garage or would terminate if the hotel should close" would have been the obvious solution. However, one did not exist, and the only right the Defendant had to terminate the contract concerned the Plaintiff's default. Even if the Plaintiff knew of the Defendant hotel's dire financial straits when they entered into the agreement, it does not relieve the Defendant from its responsibilities under the agreement as a matter of law.
• The court additionally recognized the "the incongruity of an enterprise, as large as a metropolitan hotel, being obligated to 'continue in the hotel business' merely because of various relatively minor incidental service contracts, such as that involved here." However, the court argued the incongruity does not lessen the Defendant's liability. The incongruity "does suggest that there may be a custom or usage in this industry to regard incidental service contracts for a period terminable on the hotel's going out of business." Although, the record was devoid of any reference to such custom and usage, if it is testified to at trial on remand, subject to the parol evidence rule, this information could be admissible to "establish the correct interpretation or understanding of the agreement as to its term."
• The court also recognized that the Defendant could assert the hotel's precarious financial situation as an excuse for its failure to perform. The court summarily rejected this argument by recognizing "the excuse of impossibility of performance is limited to the destruction of the means of performance by an act of God, vis major, or by law". The court observed "the purpose of providing garage services to hotel guests was frustrated only when Savoy itself made a business decision to close the hotel, and did not result from unanticipated circumstances."
The applicable rules do not permit a party to abrogate a contract, unilaterally, merely upon a showing that it would be financially disadvantageous to perform it; were the rules otherwise, they would place in jeopardy all commercial contracts.View Full Point of Law