Plaintiff Liable for Damages Resulting from Breach of Contractual Notice and Cure Provision

On January 13, 2020, Justice Emerson of the Suffolk County Commercial Division issued a decision in Misty Cleaning Serv. Inc. v. Independent Group Home Living Program, Inc., 2020 NY Slip Op. 50032(U), holding a plaintiff liable for damages for breaching a contractual notice and cure provision, explaining:

Section 4.2 of the parties' agreement required Independent to give Misty 30 days' notice to cure any non-performance under the agreement. The notice-to-cure had to be in writing and served on Misty by certified mail or by a recognized common-parcel courier providing express, receipted delivery to the Farmingville address specified in the agreement. Moreover, the notice had to specify in detail the nature of any defect or failure in performance. Section 4.2 of the agreement required Independent to give Misty an additional 30 days' notice of termination if Misty failed to cure the defect or failure in performance. It is the notice-to-cure that is at issue. Independent contends that its February 22, 2016, email to Misty was sufficient to satisfy the notice-to-cure provision of the parties' agreement.

Under New York law, strict compliance with contractual notice provisions need not be enforced when the adversary party does not claim the absence of actual notice or prejudice by the deviation . However, when a contract contains a condition-precedent-type notice, strict compliance will be required. A condition-precedent-type notice provision sets forth the consequences of a failure to strictly comply.

Contrary to Independent's contentions, section 4.2 of the parties' agreement is a condition-precedent-type notice provision. It provides, "Before any termination for non-performance is effective, the terminating party must give the other party written notice, as described herein . . . ." Despite the absence of words such as if, on condition that, provided that, in the event that, or subject to, the language is clearly conditional and sets forth the consequences of a failure to strictly comply therewith, i.e., the termination will be ineffective. Strict compliance was, therefore, required. The February 22, 2016, email failed to comply with the agreement's notice provisions in that it was not properly addressed and mailed, nor did it specify in detail the nature of the alleged defects or failures in performance. Accordingly, summary judgment is denied on Independent's unpleaded counterclaim for a judgment declaring that it abided by the notice and termination provisions of the parties' agreement.

. . .

Misty's first cause of action for breach of contract alleges that Independent breached the notice provisions of the parties' agreement. The court has already determined that Independent's February 22, 2016, email failed to comply with the notice-to-cure provision of the agreement. Accordingly, summary judgment is granted to Misty on its first cause of action for breach of contract on the issue of liability.

Contrary to Misty's contentions, Misty is not entitled to liquidated damages. As previously discussed, § 4.3 of the parties' agreement provides that Independent will pay Misty liquidated damages in the event that Independent terminates the agreement for any reason other than non-performance. The record reflects that Independent terminated the agreement due to Misty alleged non-performance. Accordingly, the liquidated-damages provision of the parties agreement does not apply.

Alternatively, Misty contends that it is entitled to its actual damages for the remainder of the contract. Independent contends, in opposition, that Misty's damages are limited to the length of the notice period.

The doctrine of expectation damages provides that damages should put the plaintiff in the same economic position that it would have occupied had the breaching party performed the contract. Courts in New York and elsewhere have recognized that, in keeping with general principles of expectation damages, when a contract permits a party to terminate upon notice and that party fails to provide the required notice, contract damages are limited to the notice period. Any damages beyond the notice period are not compensable expectation damages because they would put the non-breaching party in a better position than it would have been had the breaching party complied with the notice provision.

Section 4.2 gave Independent the right to terminate the parties' agreement for non-performance upon 60 days' written notice: 30 days' notice to cure any defect or failure in performance and an additional 30 days' notice of termination if Misty failed to cure the defect or failure in performance. Thus, Misty's actual damages are limited to the 60-day notice period. The parties disagree on how to calculate Misty's damages. Accordingly, summary judgment is denied on the issue of damages, and summary judgment is granted to Misty on the first cause of action on the issue of liability only.

(Internal quotations and citations omitted).

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.