Many Dealer or Manufacturer Representative Agreements contain clauses providing for the agreements to continue on a year-to-year basis after the initial term, subject to non-renewal. Usually, these non-renewal clauses require a notice of non-renewal to occur prior to the expiration of a term. Most often this requires a notice of non-renewal thirty (30) days before the anniversary date.
The courts in Pennsylvania, Maryland, New York and most other jurisdictions strictly construe these notice of non-renewal provisions. If notice is not given at least thirty (30) days prior to the anniversary date, the contract extends for at least another year.
This is true even if the contract also provides a thirty (30) day notice period for termination of the contract with or without cause. A notice of non-renewal is exactly that - a notice of non-renewal. It cannot be validated by other contract terms providing for time periods for other types of notices, such as a notice of termination.
The recent case of General Motors Corporation v. Bannings Beltway Pontiac,[1] 138 Md. App. 671, 773 A.2d 584 (6/1/2001), discusses the distinction between cases which have a notice of non-renewal or termination tied to the expiration of a term and those which do not. As the Court noted in discussing with approval its earlier decision in Macke Company v. Pizza of Gaithersburg, Inc., 259 Md. 479, 270 A.2d 645 (1970):
"In Macke Co. v. Pizza of Gaithersburg, Inc., 259 Md. 479, 270 A.2d 645 (1970), the contracts at issue were for terms of one year, automatically renewable for a like term, "unless thirty (30) days written notice is given by either party to terminate service." Id. at 483, 270 A.2d 645. The Court rejected a contention that the contracts were terminable at any time on 30 days notice and held the termination was tied to the expiration of the term. Id. at 492, 270 A.2d 645."
Similarly, the Court discussed with approval the Arnold Weiss Corp. case from New York:
"In Arnold Weiss Corp. v. Manisha Sportswear, Inc., 882 F.Supp. 58, 59 (S.D. N.Y. 1991), a contract provided for a one year term that 'automatically renewed from year to year unless revoked by either party with a 120[sic] written notice of such cancellation.' The contract was entered into on September 1, 1982, and continued for several years. On June 23, 1989, the defendant sent a letter stating that it was terminating the contract as of October 21, 1989. The plaintiff argued that the contract automatically renewed for a year from September 1, 1989, because the defendant did not send the requisite 120-day written notice of cancellation before the anniversary date. The Court held that the contract automatically renewed due to the defendant's failure to provide timely notice of terminations because '[t]hat is what the contract says. Id. at 59-60."
Further, the Court discussed the Otis Elevator Co. case from the Third Circuit:
"Otis Elevator Co. v. George Washington Hotel Corp., 27 F.3d 903 (3d Cir. 1994), involved a contract between a hotel owner and Otis Elevator Company that contained a ten-year term. The contract further provided that it would renew automatically for a five-year term unless a party gave notice of an intent to terminate at least 90 days before the end of the contract term. Notice was given less than 90 days prior to the expiration of the term. The hotel owner argued that the contract should not renew for the five-year term because the contract did not contain a time of the essence provision and because the other party did not sustain prejudice by virtue of the late notice. Id. at 908. The Court rejected that argument, and held that the contract automatically renewed due to the hotel owner's failure to provide notice 90 days prior to the end of the contract term. Id. at 910."
Courts have consistently held that the manufacturer is bound by the language of a dealer agreement and "is not entitled in law to argue for an interpretation where this is in the face of clear and explicit language." See, e.g., Arnold Weiss Corp., supra, at 60.
As Professor Corbin explained in his monumental work on Contracts:
"If a party who has a power of termination by notice fails to give the notice in the form and at the time required by his reservation, it is ineffective as a termination. Its terms and the circumstances under which it is given may be such as to justify the other party regarding it as a repudiation of the contract with all the effects of a repudiation." 6 Corbin Contracts §1266, (emphasis added).
Unlike other areas of law, the courts consistently have bound manufacturers to the exact time period of a notice of non-renewal. Any non-renewal notices of Dealer Agreements should be closely examined to ensure compliance with the applicable case law.[2]
If you have any questions about Dealer or Manufacturer Representative Agreements, or any other matters of commercial contracting or litigation, please contact Richard B. Sandow at rbs@jgcg.com or John P. Corcoran, Jr. at jpc@jpcg.com.
