Court of Appeal (“Second DCA”) reviewed the issue of the application of Termination for Convenience
.The Second DCA noted that Vila made three main arguments in support of its claims againstPosen; specifically that by terminating the contract solely to obtain a better price, Posen acted in badfaith and therefore could not rely on the Termination for Convenience clause; second that byterminating the contract solely to obtain a better price, Posen breached the implied covenants of goodfaith and fair dealing; and finally that without the imposition of good faith limitations, the Terminationclause reduces the contract to an illusory promise, lacking in consideration. Vila relied on several casesrelated to the Federal government
s use of Termination for Convenience clauses which the Second DCAnoted were no longer good law on many points and were factually inapposite to the current matter.The court went on to note that in invoking the Termination for Convenience provision in the contract,Posen followed the procedures provided under the contract, including supplying Vila with written noticeand providing payment for any work already done on the project.
The court further stated, “*a+ssumingthose procedures were adequate to supply consideration for the parties’ contract, there is no need toimpose any additional limit, such as bad faith *on a party’s exercise of the provision+.”
The court did
not accept Vila’s argument that without a bad faith limit, the provision reduces the
contract to an illusory promise lacking in consideration. The court noted that the argument failed underwell settled Florida law which holds that a provision requiring written notice, which the subjectTermination provision contained, prevents the promise made by the party with the right of terminationfrom being found as illusory in nature.
Wright & Seaton, Inc. v. Prescott, 420 So.2d 623 (Fla. 4thDCA 1982);
1 Williston on Contracts § 105.
Finally, the court addressed Vila’s claim that
Posen breached the implied covenants of goodfaith and fair dealing when it terminated the contract solely to obtain a better price. The court again
noted Vila’s reliance o
n insufficient case law and also noted that Vila did not address the standard whichis to be applied in regards to determining if the implied covenants
were breached, “namely that the
party to a contract has acted contrary to the reasonable expectations of the parties in performing the
Vila, at *5;
QBE Ins. Corp. v. Chalfonte Condo. Apt. Ass’n
, 94 So.3d 541 (Fla. 2012).The court went on to conclude that the plain language of the subcontract allowed Posen to exercise theTermination for Convenience provision, even if its sole purpose for doing so was to obtain a better pricefor the previously contracted for services, so long as the procedures proscribed in the provision werefollowed. If the provisions were followed the court noted th
at Posen’s actions were not, “contrary tothe reasonable expectations of the contracting parties.”
Vila, at *5. Thereafter, the Second DCA
rejected Vila’s arguments
and ordered the trial court to enter judgment in favor of Posen on the issue of liability for breach of the contract.Following this decision, both contractors and subcontractors alike must pay close attention tothe inclusion of such Termination for Convenience clauses in contracts. To protect subcontractors itwould be beneficial to include a caveat in such clauses that the provision cannot be used for the solepurpose of obtaining a lower price. General Contactors would certainty prefer the provision at issue in