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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: March 31, 2021

Plaintiff May Not Terminate Contract Without Observing Contract’s Termination Procedures

On February 28, 2021, Justice Sherwood of the New York County Commercial Division issued a decision in M&C N.Y. (Times Sq.), LLC v. Accor Mgt. US Inc., 2021 NY Slip Op. 30711(U), holding that a party could not terminate a contract without observing the contract’s termination procedures, explaining:

Defendant’s motion to dismiss pursuant to CPLR 3211(a)(1) must be granted. The principal issue on this motion is whether Section 15.13 of the HMA is enforceable. Section 15.13 states that the parties irrevocably waive and relinquish any right, power, or authority existing at law or in equity, including, without limitation, any such right, power or authority referred to in Robert E. Woolley v Embassy Suites, Inc., 227 Cal. App. 3d 1520 (1990), Pacific Landmark Hotel, Ltd. v Marriott Hotels, Inc. et al., 19 Cal. App. 4th 615 (1993) and their progeny, to terminate this Agreement or Manager’s authority hereunder, except in accordance with the express provisions of this Agreement. Although plaintiff correctly notes that in a principal-agency relationship. the principal always possesses the power to revoke defendant as an agent. New York courts routinely draw a distinction between a principal’s power to revoke an agency outside the terms of the contract and the principal’s right to revoke an agency without liability. While plaintiff possessed the authority to terminate the HMA, as it did in December 2019, it did not have the power under the HMA to do so without consequences. As discussed below, plaintiff terminated the HMA in contravention of the agreement.

Defendants’ argument in favor of dismissal focuses on whether plaintiff had the right to terminate the HMA pursuant to Section 14.3. That section states:

Notwithstanding the foregoing or anything to the contrary contained in this Agreement, neither Owner nor Manager shall be deemed to be in default under this Agreement with respect to any of the Events of Default specified in Section 14.1 (a), (d) or (e) or Section 14.2(a), (d) or (e), or have the right to terminate this Agreement in respect of such Event of Default, if (A) a bona fide dispute with respect to such Event of Default has arisen between Owner and Manager and (B) either (x) less than fifteen (15) days (or such later period as agreed to in writing by Owner and Manager) has elapsed following the expiration of the cure period applicable to such Event of Default or (y) such dispute has been submitted to the appropriate court of competent jurisdiction pursuant to Section 15.1 prior to the expiration of the fifteen (15) day (or later) period in (x) above.

On the record before the court, neither party had the right to terminate the Agreement in respect of an Event of Default between Owner and Manager as (i) a bona-fide dispute with respect to the Event of Default had in fact arisen between the parties and (ii) the dispute had been submitted to the appropriate court of competent jurisdiction prior to the expiration of the fifteen day grace period following expiration of the cure period. Plaintiff attempts to dismiss these facts by arguing that the fifteen-day grace period had expired on June 13, 2019 as it had initially served its Notice of Default on defendant on April 29, 2019, thereby triggering the 30-day cure period. This argument fails to address the fact that defendant, in response to the Notice of Default, tendered the requested $3.2 million to plaintiff and promised to effect steps to cure the alleged defaults. It was not until August 19, 2019 that plaintiff responded to defendant stating that defendant had not sufficiently explained how the alleged defaults were cured. In the letter, plaintiff granted defendant an additional eleven days to provide information about how the defaults identified in the Notice of Default were cured, effectively extending defendant’s time to cure. Within these eleven days, defendant filed suit regarding the dispute, nearly four months prior to the filing of this action. Consequently, plaintiff had no right to terminate the HMA without liability on December 17, 2019.

In New York, where the procedures for cancellation provided by the contract specify conditions precedent to the right of termination, those procedures must be followed. Because plaintiff failed to abide by the conditions precedent to the right of termination, it cannot obtain remedies conditioned on the HMA. Consequently, defendant’s motion to dismiss must be granted and plaintiffs complaint dismissed.

(Internal quotations and citations omitted) (emphasis added).

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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