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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: April 23, 2019

Contract With Specific Term Not Renewed by Course of Conduct

On March 27, 2019, Justice Masley of the New York County Commercial Division issued a decision in Mountain & Isles, LLC v. Gillz, LLC, 2019 NY Slip Op. 30872(U), holding that a contract with a specific term could not be renewed by a course of conduct, explaining:

The breach of contract claim against Gillz for improperly terminating the Agreement in violation of the renewal provision is not dismissed under MI’s theory that the Agreement renewed automatically due to sales goals being met, as supplemented by Mi’s submissions in support of its cross motion in Motion 001. Factual issues exist as to whether the sales goal was achieved, triggering the automatic renewal provision, and whether Gillz breached the Agreement by terminating early.

While a commercial contract can, in certain instances, be renewed by the parties’ conduct, it does not apply where the contract expressly provides that the parties intended to be bound for a certain term with explicit provisions for renewal of the contract. The parties here expressly contemplated the conditions under which the Agreement would automatically renew: if MI met certain sales goals during the first one-year term, the contract would automatically renew for a second, two-year term. The Agreement further provides unambiguous terms for future renewals, termination, and the parties’ obligations with respect to those contingencies/options.

Under its plain, unambiguous language, the Agreement would end after the initial one-year term unless it was automatically renewed by Mi’s satisfaction of the sales requirement. The Agreement does not provide for renewal for a second term by any other manner. If the automatic renewal provision was not triggered by MI’s sales, the parties’ continued course of conduct alone does not, without more, mean that all the terms of the expired formal contract continue to apply.

The authority cited by MI involves almost entirely employment law agreements involving individuals, not business entities. While course of conduct can, in certain instances, renew an annual contract in cases that do not involve employment agreements, the authority cited by MI does not compel an alternative result.

The automatic renewal doctrine was extended beyond ordinary employment contracts in Cinefot International Corp., which applied the doctrine to a contract for services between two business entities; however, that case contemplated an oral agreement that lacked any terms defining how, if at all, that contract’s one-year term could be renewed. Unlike Cinefot, the Agreement here is clear as to renewal and future terms. MI’s alternative allegation that the Agreement renewed by¬†course of conduct is dismissed, as a matter of law, because the Agreement reflects the parties’ specific intent to renew under only the express terms in the Agreement. Here, there is no ambiguity.

(Internal citations and quotations omitted).

Part of the reason parties to commercial contracts choose to have those contracts governed by New York law is that New York courts typically enforce contracts as written. However, this decision illustrates one of the rules applied when an event not not covered by the contract occurs. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the interpretation of a contract under New York law.

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Posted in Commercial, Contracts
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