Kamco Supply Corp. v. On the Right Track, LLC
49 N.Y.S.3d 721 (2017)
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Rule of Law:
A party's contractual right may be prospectively waived by a course of performance that is so inconsistent with an intent to enforce the right that it leaves no opportunity for a reasonable contrary inference. Such conduct can equitably estop the party from invoking a no-oral-waiver provision, effectively overriding the contractual requirement for waivers to be in writing.
Facts:
- In 2005, Southeastern Metal, Inc. (SEM) and On the Right Track, LLC (OTRT) entered into distribution agreements with the Kamco parties for a patented construction product named 'Trakloc'.
- The agreements required the Kamco parties to purchase a minimum of 15 million linear feet of Trakloc by the end of 2005 and 164.4 million linear feet during 2006, with specific monthly minimums.
- The agreements included a no-oral-waiver clause, stipulating that any waiver of a provision must be a signed written instrument.
- The Kamco parties failed to meet the 2005 annual minimum and every 2006 monthly minimum, ultimately purchasing only about 2% of the total required amount.
- While SEM and OTRT periodically complained orally, they never sent a formal written notice of default or a reservation of rights to enforce the minimums.
- By July 2006, an OTRT member conceded there was no 'realistic possibility' of Kamco meeting the 2006 annual minimum.
- Shortly thereafter, OTRT agreed to allow Kamco Supply Corp. to return over $47,000 worth of Trakloc product to SEM.
Procedural Posture:
- In November 2006, Kamco Supply Corp. commenced an action for breach of contract against OTRT in the Supreme Court (New York's trial court).
- OTRT asserted counterclaims against Kamco.
- OTRT and SEM also brought a third-party action against the Kamco parties, seeking damages for failure to meet the contractual minimum purchase requirements.
- Following a nonjury trial, the Supreme Court found in favor of the Kamco parties on the counterclaims and third-party action, holding that OTRT and SEM had waived their right to sue.
- OTRT and SEM moved to set aside the judgment, and the Supreme Court denied their motion.
- OTRT and SEM appealed the denial of their motion to the Appellate Division of the Supreme Court (an intermediate appellate court).
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Issue:
Does a party's extended course of conduct, including accepting deficient performance without formal protest and taking actions contrary to the enforcement of a contract term, constitute a prospective waiver of that term, even when the agreement contains a no-oral-waiver clause?
Opinions:
Majority - Chambers, J.P.
Yes, a party's course of conduct can constitute a prospective waiver of a contract term, even with a no-oral-waiver clause. While OTRT's and SEM's initial decision to continue the contract despite early breaches was merely an election of remedies that waived past breaches, their continued inaction reached a 'tipping point.' Their failure to send any notice of default or reservation of rights, coupled with affirmative conduct like accepting returned product and internally conceding the goals were impossible, became so inconsistent with an intent to enforce the minimum purchase requirements as to constitute a prospective waiver. The court reasoned that this conduct equitably estopped OTRT and SEM from invoking the no-oral-waiver clause, as their actions had lulled the Kamco parties into believing strict compliance would not be required. Under UCC § 2-209(5), this waiver could not be retracted at the last minute because it would be unjust.
Analysis:
This decision illustrates the significant power of course of performance to alter contractual obligations, even in the face of explicit no-oral-waiver clauses. It establishes that in long-term 'relational' contracts, a party's prolonged acquiescence to non-performance can mature from a mere waiver of past breaches into a prospective waiver of future obligations. The ruling serves as a strong caution that parties intending to enforce their contractual rights must do so affirmatively and in writing by reserving their rights, as inaction can lead to equitable estoppel and an implied waiver. This 'tipping point' analysis creates a factual inquiry that may make it more difficult to obtain summary judgment in similar disputes over waiver.
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