Press Release
09/22/06 -
Significant Victory for Equipment Manufacturer
“The courts cannot write a better contract than the parties made for themselves.”
[Chicago, September 22] – The United States Court of Appeals for the Third Circuit (the “Third Circuit”) upheld the right of a manufacturer of industrial construction equipment to terminate a distributor of such equipment in accordance with the essential provisions of the parties’ contract. (Elliott & Frantz, Inc. v. Ingersoll-Rand Company, 457 F.3d 312 (3d Cir. 2006)).
The distributor alleged that the manufacturer was prohibited from terminating the distributorship because of, among other things: (i) an alleged oral modification of the parties’ contract which prohibited the manufacturer from terminating the distributor except “for cause” (the parties’ contract provided that termination could be without or without cause); (ii) the manufacturer’s alleged “waiver” of its right to terminate the distribution agreement without cause based on the language of the termination letter (the termination letter invoked the “without cause” provision of the parties’ contract and further stated that cause for termination existed); (iii) “public policy;” and (iv) the “covenant of good faith and fair dealing.”
The U.S. District Court for the Eastern District of Pennsylvania rejected each of these claims when it granted summary in favor of the manufacturer. The Third Circuit affirmed and reasoned that the parties’ did not, based on the undisputed facts before it, modify the parties’ contract to eliminate the manufacturer’s right to terminate the distributor without cause. The Third Circuit noted that the parties contract required modification to be in writing and that prior modifications were, in fact, agreed to by the parties in writing. The Third Circuit further noted that it would be reasonable to expect that a modification that purported to eliminate a party’s right to terminate without cause to be in writing and signed.
The Third Circuit also summarily rejected the distributor’s waiver, public policy and covenant of good faith and fair dealing claims. Specifically, the Court held that a party to a contract does not waive express contractual provision by not listing them in a termination letter, nor should a party be faulted for providing more information than is required to terminate a contract. The Court further held that the public policy of the State of New Jersey (whose law the parties chose to govern their contract) did not eliminate the right to terminate the contract without cause, nor did the covenant of good faith and fair dealing, which is implied in all contracts.
According to Karen P. Layng, Vedder Price Shareholder and trial team leader, “the Court really drove home the value and inherent fairness of the original Agreement. It verified the benefits of using ‘without cause’ clauses and further defended the right of manufacturers to do business without inequitable constraints. This decision also established precedent in terms of New Jersey law relating to fair dealings.”
Vedder Price attorneys Karen P. Layng and Chad A. Schiefelbein contributed to the success of the decisions at both the district and appellate court levels.
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