Automatic Contract Renewal – October 2014

 

Many commercial contracts include provision for an automatic renewal of terms in default of express action to terminate; for example, the contract shall renew for an additional 3 year term unless notice of termination is received 90 days before the end of the term.  Such provisions are generally enforceable. The burden would be upon the party wishing to terminate the contract to prove that all proper steps were taken to avoid the automatic renewal.

In a jury trial last month, I represented a party wishing to terminate an automatically renewing contract who had admittedly failed to comply with the strict contract terms for termination. Recognizing that written contracts can be modified by the subsequent performance of the parties, we were able to successfully show the jury the conduct of both parties demonstrated their shared understanding that the contract would not automatically renew, but that additional terms needed to be negotiated. Where negotiation of those additional terms was never completed, the contract was deemed terminated, even though there had been no compliance with the previously agreed procedure for termination.