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Termination Clauses in Commercial Contracts, and How the Right One Can Help When the Other Side Sues for Breach of Contract in Georgia

Poole Huffman, LLC

When you’re negotiating a commercial contract, there are many things on which you may be focusing during that process. Most of them will probably relate to aspects of what will transpire during the life of the arrangement. What’s essential not to overlook, though, is also getting the best “out” options possible. A good termination clause in your agreement can be vital in allowing you to escape a bad deal without potentially running into breach-of-contract issues. A knowledgeable Atlanta commercial contracts lawyer can help you as you negotiate that deal, and then defend the terms of the contract you signed.

A supplier agreement case from here in north Georgia shows a practical example of this in action. The parties were a large nationwide chain of high-end grocery stores and a small Norcross-based Greek yogurt manufacturer.

Six and one-half years after the sides negotiated and executed their supplier agreement, the manufacturer received a letter from the grocery terminating the contract immediately. The letter did not indicate that the manufacturer had breached the terms of the contract; in fact, it stated no reason at all for the termination. This spurred the manufacturer to go out of business and assign its rights to an asset recovery firm, which sued the grocery.

The grocery advanced two modes of counterattack in its defense. The first was to contest the validity of the assignment document. The second was to argue that no actual breach occurred.

The grocery’s challenge to the assignment failed. It unsuccessfully argued that the asset recovery firm was not a “bona fide assignee,” but the court found that the manufacturer’s agreement with the asset recovery firm contained all the necessary language to make the latter a bona fide assignee.

The judge also decided, contrary to the grocery’s arguments, that Georgia law does not prohibit LLCs like the asset recovery firm from being assignees. The grocery’s reading of Georgia LLC law was too narrow and no such prohibition exists.

The Contract, as Written, Allowed for Termination Without Cause

So, the assignment remained in place, but the grocery had another argument: that it did not breach the supplier agreement. Specifically, the grocery pointed to a paragraph that said that the agreement “shall continue in effect with respect to all Products purchased or ordered by [the grocery] from Supplier prior to the receipt of written notice of its revocation” by the grocery.

In other words, the contract obliged the grocery to provide notice and nothing more. Although the contract suffered from less-than-ideal drafting, as the paragraph arguably should have said “termination” instead of “revocation,” the grocery was able to persuade the court that, when considering the totality of the paragraph and the agreement, “revocation” should be construed as meaning “termination.”

The court agreed, finding that the “revocation” in question referred to the grocery taking the entire agreement out of effect or, in other words, terminating it. That meant the agreement did not require the grocery to state a cause for termination, was entitled to summary judgment, and was not liable for any damages in terminating the agreement the way it did.

Commercial contracts contain countless terms that may be easy to dismiss as perfunctory but that, in reality, can make millions of dollars of difference down the road, such as when one side terminates the deal. The right contract, then, is well-written and thoroughly protects all of your essential business interests from beginning to end. The skillful Atlanta commercial contract attorneys at Poole Huffman, LLC are here to help. Our attorneys have the knowledge and experience you need when it comes to negotiating, executing, and enforcing your best agreement. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation today.

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