Terminator Beware

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Terminating a contract is a serious and sometimes risky decision. Whenever a client seeks advice regarding termination, a lawyer should stress the importance of strict compliance with the contractually specified termination provisions. One misstep by a terminating party who otherwise did nothing wrong could be a material breach of contract exposing the terminator to potentially large damages, even if the party being terminated first failed to perform under the contract. Is termination less risky with contracts that do not include any termination provisions? A Connecticut Supreme Court decision recently addressed this question and its ruling could have significant impacts.

The court ruled in Centerplan Construction Co. v. City of Hartford, 343 Conn. 368 (2022), that when a contract is silent as to termination notice and cure rights, a right to cure within a reasonable time is implied as a matter of law, unless that right is expressly waived. Notice and cure rights are thus implied in every contract and noncompliance with this unwritten requirement exposes a terminator to damages as if it had not followed the actual written provisions. This presumably applies not only to every proposal, purchase order, and short form contract, but also to oral agreements. Even if a party is in default and the project is delayed, Centerplan holds that it is entitled to notice and an opportunity to cure within a reasonable time before it may be terminated. The court provided no guidance on how long is “reasonable” to cure, so allowing an unreasonably short cure time before termination could conceivably expose the terminator to liability as well.

All may not be lost if a terminator doesn’t provide notice and the right to cure within a reasonable time, though it may involve a lawsuit. A terminator may have defenses against a claim for wrongful termination if, for example, a breach is truly incurable or the opportunity to cure is futile. The terminator would bear the burden of proving such defenses in court. The better approach would be to avoid this issue altogether by including language in every contract either incorporating notice and cure obligations (so they can be followed in the event of termination) or expressly waiving them.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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