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In order to invoke the doctrine of frustration of purpose, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense. The doctrine applies when a change in circumstances makes one party's performance virtually worthless to the other, frustrating his purpose in making the contract. Stated differently, it addresses situations in which both parties can perform but, as a result of unforeseeable events, performance by party X would no longer give party Y what induced him to make the bargain in the first place thus frustrated, Y may rescind the contract. The doctrine has its origin in what are known as the coronation cases. The modern version of this doctrine, however, recognized by New York courts, has evolved as narrower than its application in Krell.
Landlord sought to recover from tenant millions of dollars in past-due rent under the Lease and recovery of its attorneys' fees for bringing the present action. For its part, the tenant sought: (i) rescission or reformation of the Lease due to "frustration of purpose" or "impossibility of performance; (ii) termination of the Lease because the pandemic constituted a "casualty" that has "rendered the Premise wholly or substantially untenantable;" (iii) abatement of rent because the pandemic constituted a "hazard;" and (iv) recovery of "overpaid" rent "for the period of time that tenant was unable to operate a retail store at the Premises as originally contemplated by the Lease." The landlord moved for summary judgment on all claims asserted by and against it.
Under the circumstances, should the court grant the landlord’s motion for summary judgment?
The court granted the landlord’s motion for summary judgment. The court held that although the adverse economic effects of the pandemic undoubtedly were real and significant, they did not rise to the level of triggering an extra-contractual common law right to rescind a 13-year commercial lease and temporary closure of the tenant’s business for two months (April and May 2020) in the penultimate year of its initial term could not have frustrated its overall purpose. The court further held that while the pandemic undeniably hurt the tenant's business, the narrow doctrine of frustration of purpose was inapplicable as a matter of law.