Business agreementsare often complicated documents involving a healthy dose of legal language. While such complexity may seem unnecessary, a well-drafted contract provides important protections for all parties involved. This includes provisions for terminating a contract, should problems arise.
Unfortunately, misunderstandings can arise even when there is a written contract in place, and this can lead to litigation. Here is arecent case in point from upstate New York. The plaintiff was hired to build an apartment complex. The plaintiff then hired the defendant as a subcontractor to provide framing services on the project. The parties signed a written subcontract. The defendant then began to perform according to the terms of the agreement, obtaining a supply bond for the necessary materials, providing proof of insurance, and submitting invoices to the plaintiff. In return, the plaintiff paid the defendant for about 40% of the total contract—more than $1 million.
There were, nonetheless, issues between the parties. The plaintiff was “growing concerned” by the defendant's delays in responding to calls and emails. The defendant, in turn, said it had its own concerns regarding the plaintiff's delays in starting construction.
About four months into the subcontract, a representative of the plaintiff attempted to contact the defendant without success. The representative then sent the defendant an email stating the plaintiff “was calling the bond in” on the defendant's materials and soliciting bids for a new framing subcontractor. The email went on to say the defendant “has made it clear that they cannot perform on this project.”
The defendant interpreted the email as a cancellation of the subcontract. Furthermore, it was a wrongful termination as the plaintiff failed to comply with the subcontract's written notice requirements. Additionally, the defendant claimed the subcontract was never validly executed in the first place, as the plaintiff failed to return its signed copy of the agreement to the defendant within the specified timeframe. (The signed subcontract was apparently delivered to an incorrect address.)
The plaintiff maintained its representative's email was not a formal termination notice, but rather an attempt to “generate a sense of urgency on the part of [the defendant] to timely perform its obligations under the Subcontract.” The plaintiff sent a letter restating this position and insisting the defendant perform its obligations under the subcontract. When the defendant failed to respond, the plaintiff formally terminated the subcontract and later sued the defendant for breach of contract.
Before Albany County Supreme Court, the defendant argued that it “permissibly rescinded” the subcontract when the plaintiff failed to return its signed copy of the agreement and that the representative's email was an “unjustified repudiation” of the contract, thereby releasing the defendant from any breach of contract claim. The judge rejected both of these arguments.
On rescission, the judge noted the defendant waited several months before notifying the plaintiff that it never received its signed copy. During that period, the plaintiff made several payments to the defendant and relied on the belief the defendant would carry out its end of the bargain. The judge said the defendant could not now “rescind” the agreement.
As for the plaintiff's purported repudiation, the judge noted this was “an intricate Subcontract consisting of 75 or so pages of contractual language.” Given this, it was highly unlikely the plaintiff's email was intended as an “unequivocal” repudiation of the parties' agreement. And even if it was a repudiation, the plaintiff's actions immediately afterwards constituted a “retraction” thereby obligating the defendant's ongoing performance.
Get Help from a Business AttorneyIf you need help drafting a contract or enforcing an existing agreement, an experienced New York business attorney can help. Contact the offices of Waldhauser & Nisar, LLP, if you need to speak with an attorney today.