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Waiving the Right to Terminate a Contract

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Waiver is the relinquishment of a known right. Sometimes waiver is explicit. Sometimes, however, waiver results from a party sitting on a breach of contract for years and not treating it as a deal-breaker until it is looking for an excuse to terminate that contract. This sort of bad faith gamesmanship can prove to be an expensive mistake as demonstrated in a recent New York case. 

In 110 East 138 Realty LLC v. Rydan Realty Inc., Sup Ct, Bronx Cty., May 12, 2021, McShan, J., Index No. 24092/2020E, the Court dismissed a lawsuit on the grounds that the plaintiff waived its right to terminate the contract. Back in November 2017, defendant Rydan Realty, Inc. (for brevity, Rydan and the other defendants shall be called just “defendant”) contracted to sell a lot with a commercial building to the plaintiff 110 East 138 Realty LLC. Instead of moving forward to a closing, for nearly two more years the parties entered into multiple closing extensions with attendant payments and deposits. Finally, in May 2020, the plaintiff sent to the defendant a termination notice, with the reason being that New York State had taken rights to a section of the property in 1983. Based on this appropriation by the state, the plaintiff claimed that the defendant could not tender marketable title pursuant to the contract. The defendant refused to return the sizeable down-payment, and the plaintiff brought suit alleging conversion, breach of express warranty, unjust enrichment and fraud.

In response, defendant stated that the 1983 appropriation was (1) a permitted exception to the contract (or — in other words, the plaintiff had agreed to take title anyhow); (2) the contract schedules listing this exception trump the warranty provisions; and (3) the plaintiff had failed to terminate the contract by the due diligence deadline, and so had waived any objection to the appropriation. The defendant argued that the plaintiff’s late termination for the reasons set forth was in bad faith, that the appropriation was “repeatedly disclosed,” and further, that the appropriation was in reality merely a “sliver of the property sitting underwater in the river.”

The Court, looking at the contract and the subsequent extension agreements that ratified the original contract, found that the plaintiff “was clearly aware of the 1983 Appropriation before the expiration of its due diligence period.” The plaintiff had the title report for two and a half months prior to the end of the due diligence period and nearly two-and-one-half years before the plaintiff sought to terminate the contract. Moreover, the Court found that the plaintiff waived any purported breaches when it entered into the subsequent amendments with additional payments. The Court then also dismissed the plaintiff’s claims for conversion, fraud and unjust enrichment as either duplicative of the claim for breach of contract or precluded by the existence of a valid contract.

The lesson of the case is to always look to the terms of the contract and be very certain that a tenuous, long-overdue basis for cancellation has not been waived by either express contractual provision or by the passage of time. Best practice is to seek good legal advice and act promptly and in good faith when terminating a contract to avoid an unintended waiver of rights.





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