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Current Developments in the Commercial Divisions of the
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Posted: March 28, 2020

Defendant Could Not Terminate Contractor Without Providing Contractually-Required Notice and Opportunity to Cure

On March 3, 2020, Justice Schecter of the New York County Commercial Division issued a decision in Five Star Contr. Cos. Inc. v. Board of Trustees of the Fashion Inst. of Tech., 2020 NY Slip Op. 30688(U), holding that a contractor could not be terminated without being provided the contractually-required notice and opportunity to cure, explaining:

Five Star is entitled to summary judgment on its claim that it was not properly terminated for cause. Regardless of which for-cause provision governs, both require an opportunity to cure. It is undisputed that FIT did not permit Five Star the opportunity to do so for any of the breaches alleged in the September 6, 2012 letter. Though an opportunity to cure need not be provided where doing so would be futile, that is not the case here. FIT’s contention that Five Star’s violations are tantamount to an unequivocal repudiation of its intention of ever abiding by the Contract is unsupported by the record. In fact, the record reveals, as is unfortunately common with construction contracts, that the parties often did not follow the letter of the Contract. It would be unreasonable to infer an unequivocal repudiation from Five Star’s past violations here and it would result in an unfair forfeiture. If such an inference was permitted, it is likely that all contractors could be terminated with cause due to some persistent technical breach without ever being given an opportunity to cure. The exception would swallow the rule and cure provisions would be meaningless.

Excusing a failure to provide the requisite notice and cure period is ordinarily reserved for extreme situations. Although FIT submits evidence that Five Star’s non-compliance was raised at meetings, the meeting minutes do not show that Five Star unequivocally refused to comply. Repeatedly raising issues at a meeting is not a substitute for providing a formal opportunity to cure with the requisite notice of termination as required by the parties’ agreement.

Indeed, the very point of notice and a cure period is to alert the breaching party, in no uncertain terms, that its failure to remedy the problem will result in a for-cause termination before it is a fait accompli. The requirement is specifically meant to allow the breaching property to remedy a breach before termination. When parties expressly bargain for this “last-chance” opportunity to make things right, they are supposed to be protected if, faced with the stark reality of termination, they decide to right the ship. Here, Five Star may well have decided to cure when faced with impending termination. It is impossible to know whether it would have done so. It is clear, however, that FIT did not provide it with that opportunity as mandated by the Contract. Without doing so, FIT did not have the right to affect a for-cause termination. Thus, summary judgment is granted to Five Star on its claim that it was improperly terminated for cause.

(Internal citations 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. 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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