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Under New York law, a party’s termination of a contract is ineffective when the contract provides for notice and an opportunity to cure, and notice was not provided. 1 As explained by the First Department:
Our case law is clear that a party’s termination is ineffective where the relevant contract provides for a notice to cure and notice is not provided …This approach gives effect to the principle that, generally, where contracting parties agree on a termination procedure, the procedure will be enforced as written…. 2
“There are limited circumstances where despite being contractually required, notice to cure is not necessary, such as where the other party expressly repudiates the contract or abandons performance.” 3 “[N]otice to cure is not required where the breach by the other party is impossible to cure, or so substantial that it ‘undermines the entire contractual relationship such that it cannot be cured’”. 4
In Hudson Valley Window Cleaning, Inc. v. Rotron Inc., 2023 N.Y. Slip Op. 00395 (1st Dept. Jan. 31, 2023) (here), the foregoing issues were before the Appellate Division, First Department.
[Ed. Note: the factual discussion, below comes from the parties’ appeal briefs and the Court’s decision.]
Hudson Valley involved a rate and service agreement pursuant to which Plaintiff agreed to provide cleaning services at one of Defendant’s facilities (the “Agreement”). The Agreement contained a requested statement of work for janitorial service, which detailed the work to be performed by Plaintiff pursuant to the Agreement (the “SOW”).
The Agreement also contained a notice and cure provision (“Notice and Cure Provision”), which provided, in pertinent part, that Defendant could “terminate the contract with 60 days written notice for nonperformance”. In such event, Defendant was required to “first notify [Plaintiff] in writing describing the problem” and, “[i]f after 30 days of the notice, the problem ha[d] not been corrected,” the parties agreed that the Agreement “may be terminated”.
According to Defendant, Plaintiff frequently failed to fully perform under the terms of the Agreement. On numerous occasions, Defendant allegedly advised Plaintiff of instances where Plaintiff failed to perform services in accordance with the Agreement. Despite being put on notice of Plaintiff’s poor performance, Plaintiff allegedly continued to provide the same quality of substandard services.
Following a telephone call between the parties during which Plaintiff was put on notice of being terminated, Defendant notified Plaintiff in writing, on July 20, 2021, of its intent to terminate the Agreement. In pertinent part, Defendant advised Plaintiff that its “service [was] falling short of … expectations on all aspects of the SOW” and warned that “[i]f the service does not improve in its entirety in the next thirty days; our agreement will be considered null and void”. Defendant explained that its letter “shall serve as Notice of Intent to Terminate pursuant to the Agreement”. Plaintiff rejected the termination notice letter.
Plaintiff allegedly failed to cure the defects in its service. On August 26, 2021, approximately one week after service had ceased completely, Defendant issued a “Termination Letter”.
On September 10, 2021, Plaintiff commenced the action by filing a summons and complaint (the “Complaint”). On December 9, 2021, Defendant filed a verified answer with affirmative defenses and counterclaims (the “Answer”). On December 29, 2021, Plaintiff filed a reply to counterclaims with affirmative defenses.
On March 9, 2022, Plaintiff filed a motion for summary judgment and to dismiss Defendant’s counterclaims. On July 27, 2022, the motion court denied plaintiff’s motion on the issue of liability on its claims and for summary judgment dismissing Defendant’s counterclaims. The motion court found that the Notice and Cure Provision was ambiguous, and that discovery was required to “give clarity” to the provision.
Plaintiff appealed. The First Department modified the motion court’s order to grant plaintiff’s motion to dismiss defendant’s unjust enrichment counterclaim, 5 and otherwise affirmed the order.
The Court found that “whether defendant provided the requisite notice to cure and whether plaintiff complied [were] issues of fact”. 6 The Court explained that the July 20 notice of intent letter “was not a ‘positive and unequivocal’ termination of the contract, since it recognized that plaintiff could cure and the contract could continue”. 7
The Court also found issues of fact as to whether (a) “plaintiff previously abandoned performance,” thereby “obviating the need for a notice of termination” 8 and (b) “plaintiff failed to cure, so that defendant then had a contractual right to terminate, but merely provided the erroneous date of termination”. 9
In holding that the were issues of fact as to whether the July 20th notice of intent letter was a “positive and unequivocal” termination of the Agreement, the Court relied on Princes Point LLC v. Muss Dev. L.L.C., 30 N.Y.3d 127, 133 (2017). In Princess Point, the Court of Appeals explained that “the expression of intent not to perform … must be ‘positive and unequivocal.’” In Husdon Valley, as explained by the First Department, the notice of intent letter did not meet this standard because “it recognized that plaintiff could cure and the contract could continue” as if there were no issues. 10
The First Department’s decision is also interesting because of the way it treated the issue of abandonment. “A contract will be treated as abandoned when one party acts in a manner inconsistent with the existence of the contract and the other party acquiesces in that behavior.” 11 In other words, “the refusal of one party to perform his contract amounts to an abandonment of it, leaving the other party to his choice of remedies, but his assent to abandonment dissolves the contract so that he can neither sue for a breach nor compel specific performance.” 12
“To establish abandonment of a contract by conduct, it must be shown that the conduct is mutual, positive, unequivocal, and inconsistent with the intent to be bound”. 13 “Generally, a finding of an abandonment will be based upon clear, affirmative conduct by at least one of the parties that is entirely at odds with the contract.” 14 In Savitsky, the plaintiff, the contract vendee of real property, was said to have evinced an intent to abandon the contract by her failure to take any steps to preserve her rights to purchase the property once she became aware of the owner’s impending sale of the subject property to a third party. Thus, the seller took affirmative steps contrary to the contract, and the purchaser failed to object. 15 In Steven Strong Dev. Corp. v Washington Med. Assoc., 303 A.D.2d 878 (3d Dept. 2003), a real estate developer, years after entering into an agreement to develop real property, conceded, in writing, the failure of the project and affirmatively waived the developer’s fee. Its own action in writing that letter was an affirmative step inconsistent with enforcing its rights under the agreement, therefore constituting an abandonment.
In Hudson Valley, the First Department held that there here were issues of fact as to whether Plaintiff took affirmative steps inconsistent with its contract with Defendant. After all, it rejected the notice of intent to terminate and continued to perform under the Agreement.
Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
