By: Thomas S. Tripodianos Published: October 2011

Question of Intrepreting a 90 Day Cancelation Policy in a Service Contract

Question. Owner executed a 10 year service contract with Elevator Contractor, and notified them, a year later, Owner was cancelling it. Elevator Contractor alleges the cancellation could only occur 90 days before the expiration of the contract term. That would mean the anticipated cancellation date was the same as the end of the contract. Was Owner's cancellation proper?

Answer. Yes.

Elevator Contractor's reading of the contract is improper. The contract did not state such, and such condition was not agreed to by the parties. The contract was mutually cancellable, but Elevator Contractor had a viable claim for 90 days worth of unpaid services from the date of Owner's notice.

In relevant part, the contract provides that it may be cancelled as follows:

THE SERVICE IS FURNISHED FROM 10/1/08 FOR THE PERIOD OF TEN (10) YEARS AND WILL BE RENEWED FOR THE SAME PERIOD OF TIME UNLESS CANCELLED BY EITHER PARTY ON NINETY DAYS WRITTEN NOTICE PRIOR TO THE END OF ANY CONTRACT TERM AND ANY AND ALL OUTSTANDING INVOICES MUST BE PAID BETWEEN THE TIME THE NOTICE OF CANCELLATION IS RENDERED AND THE ANTICIPATED CANCELLATION DATE.

By letter dated September 24, 2009, Owner notified Elevator Contractor that it was cancelling the contract "effective today." Elevator Contractor's wrote back on September 25th that the cancellation letter was a "nullity" and that it was rejected because the contract was effective until September 30, 2018. According to Elevator Contractor, the cancellation could only occur "at least 90 days prior to the expiration of the contract term."

Whereas Elevator Contractor claims the contract is unambiguous, Owner contends it makes no sense that an elevator service company would want to tie itself down to one client at an unfluctuating monthly rate for ten (10) years. Thus, Owner contends the cancellation clause has been misconstrued by Elevator Contractor, there is an ambiguity in the contract and it should be construed against Elevator Contractor since Owner had no part in authoring the document. According to Owner, the contract can be "CANCELLED BY EITHER PARTY ON NINETY DAYS WRITTEN NOTICE" at any time "PRIOR TO THE END OF ANY CONTRACT TERM..." Owner argues that if Elevator Contractor intended that this "could only be" cancelled "PRIOR TO THE END OF ANY CONTRACT TERM" it should have contained such language.

The terms of a written contract between the parties should be enforced in accordance with its terms. The interpretation by Elevator Contractor of the contract provision at issue is not supported by the very words in that particular provision or when examining the contract as a whole.

The cancellation clause indicates the contract is for a period of 10 years. It also states that it will automatically renew for another 10 years "UNLESS CANCELLED BY EITHER PARTY ON NINETY (90) DAYS WRITTEN NOTICE PRIOR TO THE END OF ANY CONTRACT TERM..." The contract does not state it can "only be cancelled on ninety (90) days written notice prior to the end of any contract term." Adopting Elevator Contractor's interpretation would mean that the "ANTICIPATED CANCELLATION DATE" is the exact same thing as the "END OF THE CONTRACT." The contract does not state this and it is not a condition agreed to by the parties in writing.

The contract also has a separate provision dealing with payment of invoices. It states that:

THE COMPANY RESERVES THE RIGHT TO SUSPEND OR CANCEL THIS CONTRACT UPON FAILURE TO MAKE PAYMENT OF ANY OUTSTANDING INVOICES OVER 120 DAYS, SUCH SUSPENSION OR CANCELLATION TO BE EFFECTIVE UPON THE MAILING OF NOTICE THEREOF...

Consequently, the contract is cancellable at other times and for other reasons.

Arguments by Elevator Contractor, that it fully intended to be bound for the entire 10 year term of the contract and it could not be terminated sooner than that, only identify their misconception of what the contract stands for. The condition Elevator Contractor claims to have bargained for is simply not evident in the plain language of this agreement. Evidently the parties agreed they could mutually terminate the contract on notice. Elevator Contractor's argument that it expected the contract to last a "minimum of 10 years" is easily reconcilable with the terms of the contract. It would have lasted 10 years, but for the decision by Owner to cancel it. It could also have been cancelled by Elevator Contractor, however, for non-payment and also on 90 days notice.

Since Owner gave Elevator Contractor notice of the Owner's intention to terminate the contract, but stated it was effective "today," Elevator Contractor has a viable claim for 90 days worth of unpaid services from the date of the notice. The notice was not rejected by Elevator Contractor because it failed to give 90 days notice, but because it was not 90 days before the end of the contract term.

© Welby, Brady & Greenblatt, LLP.
All Rights Reserved. By visiting this site, you agree to our Terms of Service. For more information please read our Privacy Policy Attorney Advertising