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Private Parties May Terminate For Convenience, But Only To Mitigate Genuine Risk

Monday, November 30, 2009 03:15 am

 

The concept of terminating a contract for convenience arose after the Civil War when courts sought to protect the public purse. Today, a "termination for convenience" clause appears in both government and private contracts. But was the convenience termination provision meant to give private parties the same right it affords the federal government? Not exactly, a Maryland court recently surmised.

You may terminate if you're about to lose your shirt

represents the first case in Maryland to consider whether a termination for convenience clause makes the contract voidable -- or illusory. (An illusory contract only appears to be binding.) The case involved a subcontract for carpet installation, which general contractor Questar Builders, Inc. (Questar) terminated before work began. The subcontractor, CB Flooring (CB), sued for breach of contract and challenged the applicability of the subcontract's convenience termination clause given that

Questar Builders, Inc. v. CB Flooring, LLC, 2009 Md. LEXIS 627 (Md. Aug. 25, 2009)

"Questar acted in bad faith by invoking the clause after scheming to hire" a replacement subcontractor. A circuit court disagreed with Questar that its right to terminate for convenience was unlimited and found the contractor had improperly terminated without cause.

Questar appealed, asking the Court of Appeals of Maryland to consider whether a convenience termination clause between private parties is enforceable in Maryland. The answer: It can be. The appellate court noted that the clause can be an effective tool to protect parties "in markets where there is substantial risk due to changing technology or where loss, if it occurs, could result in  inancial Waterloo, as in the construction industry."

The court first examined the federal government's right t [...]

 
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