Daniel Lund III | Phelps Dunbar
“I never had a chance.”
Such was the plea of a general contractor to a Maryland federal court after having been terminated for failure to perform.
“The Agreement provides no express right to cure,” found the court, weighing in on the contractor’s wrongful termination claim. Indeed, the contract was also very clear on termination, allowing for termination for cause on numerous bases, including a common catchall: if the contractor “persistently fails to perform the provisions of this Agreement.”
In advance of the actual date of termination, the owner wrote to the contractor, in accordance with the contract: “Notice is also given that seven days from the date of this correspondence, [owner] will exercise its [termination] rights under Section 13.2.2.2 of the Contract.” The communication from the owner contained no discussion of allowing the contractor an opportunity to cure its alleged default.
As a follow-up to the above, the court launched into a broad discussion that “various treatises have recognized an implied right to cure in construction contracts.” Several of those authoritative sources were quoted by the court:
- “Cure is a fundamental common-law right implied in every contract as a matter of law.”
- “The right of a breaching party to be given an opportunity to cure its own material breach is an ancient equitable principle….”
- “The owner, however, under the terms of most construction contracts must give the contractor notice of the incomplete or defective work and opportunity to cure before it will be entitled to complete or correct the work itself.”
- “The right to cure is a fundamental contractor right.”
Based on the foregoing – on its own initiative – the court essentially rewrote for purposes of the case the seven-day notice provision quoted above (although nonetheless still referred to the obligation as “implied”). Per the court: “If [contractor] were not permitted to fix the underlying problems, there would be little benefit or purpose to requiring seven days’ notice. For these reasons, [owner] was required to give [contractor] an opportunity to cure the breaches before termination.”
As it turned out, the court held that the owner had actually given the contractor the required seven days to cure the alleged issues on the project – simply based on the timing set forth in the termination notice – although the court certainly could have ruled the other way.
All of this points to: unless your state does not follow the above-quoted “fundamental” equitable principles, it is wise to include in your contracts an express opportunity to cure – in a fixed or easily calculable duration – to avoid leaving it up to a court to determine whether a terminated contractor was given a sufficient opportunity to cure its project ills.
Gray Constr., Inc. v. Medline Indus., Inc., 2023 U.S. Dist. LEXIS 34918 (D. Md. Mar. 1, 2023)
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