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Course of Dealing and Breach of Contract

Course of Dealing and Breach of Contract

The Supreme Court of New York County recently heard the case of Linder v. Innovative Commercial Systems. This case raised some interesting issues in the employment law sphere, and also encountered the unusual situation where either plaintiff or defendant would win on motion for summary judgment. In cold contractual terms, the case hinged on a certain lack of clarity. A contract term, commonly interpreted to mean one thing, seemed to be contradicted by the parties’ course of dealing. Course of dealing interpretation rests on the idea that because the parties acted a certain way over a period of time, the way they acted was the way they understood the contract to be interpreted – and that meaning is the one the court should honor. Course of dealing issues, in litigation, commonly occur when one party attempts to betray the other (often a close friend or business partner) by ‘going back’ to the original language of the contract, often after years of the course of dealing being used in a different manner.

Background of the Case

Plaintiff Linder and defendant Innovative Commercial Systems (“ICS”) were in the business of installing and servicing residential home security systems. Plaintiff had a great deal of experience in this industry, and so he was hired by ICS on a contractual basis. Linder was, basically, a salesman; his job was to sell systems and maintain relationships with customers. Starting in 2002 Linder received commissions on sales (installation or maintenance contracts) made to customers. Interestingly, plaintiff and defendant did not have a signed agreement.

ICS only paid Linder a given commission when ICS received payment from a customer. As part of his job, Linder also attempted to make collections on past-due amounts from customers. In November 2009, ICS fired Linder. Linder sued for breach of contract and other causes of action, ICS counterclaimed for various things and also moved for summary judgment on Linder’s breach of contract claim.

Analysis

The court viewed the main issue as to exactly when Linder earned his commissions. Was it when he made the sale to the customer, or was it when the customer actually paid ICS?

The general rule in New York is that a salesman is not entitled to commissions, after termination, merely because he started the customer relationship with the company. However the rule in New York is also that once a commission is earned, it becomes a wage that cannot be forfeited (for example by the salesman getting fired).

Linder made a big deal about there not being any formal written agreement in his argument that his commissions were earned when the sale was made. However the court disagreed. Citing the relevant case from the NY Court of Appeals, it said that parties in New York could have an implied agreement about commissions. After examining the record and all depositions made by both parties, it pointed to several facts. Linder received commissions when the customer actually paid. In fact, Linder, in his collections efforts, did not expect to get paid if he couldn’t get delinquent customers to pay up. Linder also benefited by receiving commissions on automatic renewals by customers, where he didn’t actually do any work to re-earn the sale. Thus, the extensive course of dealing established that both sides had an implied agreement that the commission would only be earned when the customer paid, not when the sale was made.

If you have questions about breach of contract, please don’t hesitate to contact our officefor a consultation.

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