Termination Clauses Strictly Enforced in Construction Contracts

Construction contracts typically contain detailed requirements regarding both the contents of documents which must be submitted during the course of a project, and when they must be submitted. It is often difficult to know when the content and the timing of these documents must strictly follow the letter of the contract, and when these requirements are more lax. All contracting parties should be aware, however, that when it comes to notices of termination, it is best to follow the terms of the contract carefully. If one does not, with certain narrow exceptions, the termination is likely to be found wrongful. The opinion in D. Owens Electric, Inc. v. J.W. Mays, Inc.  61 Misc.3d 1225(A) (Sup. Ct. Dutchess County 2018) is instructive on this point.

In D. Owens, J.W. Mays, Inc. (“Mays”) was the owner of the premises in question. Mays retained D. Owens Electric, Inc. (“Owens”) to perform certain demolition and roof work.

According to Mays’ contract with Owens, Mays was obligated to provide Owens with a written notice that it had failed to properly perform the work prior to a termination. In addition, pursuant to Mays’ contract with Owens, only the owner of Mays, or such other person designated in the Contract at the time of signing, was authorized to terminate the Contract by registered or certified mail.

A dispute arose between the parties and Mays’ attorney sent a series of letters, none by registered or certified mail, which, along with certain face to face conversations between principals, lead to Mays’ termination of Owens.

Under those circumstances, the Court found that Mays had improperly terminated the Contract, and had therefore breached its agreement with Owens.

The Court noted that in construction contracts termination clauses must be followed to the letter. It noted only two well recognized exceptions. First, a failure to strictly comply with contractual termination provisions would be excused if the breach could not be timely cured. Second, strict compliance was unnecessary if the breaching party had repudiated the contract rendering the termination procedure futile.

Because Mays’ termination of Owens did not follow the terms of the underlying Contract, and did not fit into the two narrow exceptions, Mays’ termination of Owens amounted to a breach of contract. At a trial of this action, Owens was thus awarded damages for work performed and not paid for, and anticipated profit lost as a result of the wrongful termination.

While potential terminations of contract often arise in contexts where there is pressure to move quickly and decisively, the D. Owens decision underscores that it is imperative to review the underlying contract documents and to follow carefully the relevant procedures to effectuate termination.