LEGAL OPINION ON CONTRACT TERMINATION
The Agreement became effective on January 12, 2021, but was signed on January 21, 2021, by EnerChem Engineering LLC (the “Engineer”) and Moore Industries, LLC (the “Company”). The Agreement’s purpose was to design, develop, and maintain the Company’s carbon capture and carbon removal devices (the “Devices”) by the Engineer for the Company.
Was the termination valid?
As per Section 4 of the Agreement,this Agreement was to continue for the term of two years (renewable per the Company’s discretion) unless;
- Otherwise terminated per the provisions of Section 5 of the Agreement; or
- If both Parties agree to end the Contract.
Section 5 of the Agreement states that the Agreement may only be terminated by;
- Either Party after serving the other Party 3 days written notice for a material breach of the Contract and the breach is not rectified;
- The Company at any time, if the Engineer refuses to comply with the written policies or reasonable directives of the Company, or is guilty of serious misconduct in connection with performance under this Agreement; and
- The Engineer, after serving the Company 3 days written notice for a material breach of the Contract and the breach is not rectified.
It is important to note that the Agreement does not define what constitutes a material breach; only one definition of a material breach is given, i.e., any delays to the timeline. It is, therefore, difficult to ascertain when to use the seven days’ notice or the three days’ notice. In addition, misconduct or serious misconduct has not been defined either, making the provision vague.
The Engineer shall be paid for any amounts due before the day of termination, and the Engineer shall deliver to the Company all intellectual property developed under the Agreement before termination within one day of the Termination Date by the Company. This Section also has an error since it implies that the Engineer will only be subjected to deliver the intellectual property if it’s the Company that has terminated the Agreement. It is, therefore, silent on what happens to the intellectual property once the Engineer terminates the Contract. However, this omission has been covered under Section 12, which states that all proprietary materials and designs prepared by the Engineer under the Agreement shall be considered “works for hire” and the exclusive property of the Company unless otherwise specified.
Section 21 of the Agreement is on Notices. It states that notices or communication should be written and delivered; in person, by overnight courier, or by mail (registered or certified mail, postage prepaid, return-receipt requested) to the Parties’ addresses highlighted in the said Section.
This means that the Termination Notice should have been sent to the Parties’ addresses highlighted in the Section and not via email. The Section has been written in mandatory terms (the word ‘Shall” has been used), meaning there is no option to give a notice or communication in any other way other than through the provided addresses. Email communication under the Agreement is meant for; the Company to share designs specifications with the Engineer, the Engineer to communicate with the Company weekly on progress made on the designs for the Device or Devices and communicate on progress made on the milestones listed in Exhibit-A in performing the Services. Weekly email communication also includes design details for the Device or Devices, any other information related to the Device or Devices requested by the Company.
The Engineer’s general responsibilities under the Agreement were designing, developing, and maintaining the Company’s carbon capture and carbon removal devices. The Company’s general responsibility was to fund procurement and fabrication of devices under Sections 6 and 9. The Agreement as provided under Section 4 could only be terminated due to two reasons, i.e., If both Parties agreed to the termination or if the Agreement is terminated due to breach of the Contract under Section 5. Failure of either Party to perform their obligations would also entitle a Party to indemnification as provided under Section 14.
The only exemption to when a Party cannot terminate the Contract due to breach is if there has been a Force Majeure event. Section 19 (c) of the Agreement states that a Party’s, failure perform their obligations under the Contract due to an event beyond that Party’s reasonable control (Force Majeure) shall not be a breach of the Agreement. The affected Party must however communicate the occurrence and impact of such Force Majeure event to the other Party and make reasonable efforts to resolve any issues resulting from the Force Majeure Event and perform its obligations under the Agreement.
The Agreement does not allow the Parties to terminate the Contract unless through consent or breach. As per the circumstances, there was no consent between the Parties to terminate the Agreement, which leaves only one option left ie. breach. The issue is then to decide whether the Company breached the Contract giving rise to the Engineer’s rights to terminate the Agreement.
Section 6 of the Agreement highlights the Company’s responsibilities as follows:
- Fund the development of the Prototypes of the Devices.
- Fund the construction of the Devices.
- Establish the partnerships, projects, and clients to where the Devices will be utilized in order to generate revenue for the Company and Engineer.
- Be responsible for all the costs associated with the setting up of the Devices at their
Section 9, on the Party’s representations and warranties, the Company represented and warranted that; they will make timely payments of amounts earned by the Engineer, they shall notify the Engineer of any changes to its procedures affecting the Engineer’s obligations at least three days prior to implementing such changes, they shall provide such other assistance to the Engineer as it deems reasonable and appropriate and they will fund procurement and fabrication of devices.
Therefore, only breach of Section 6 and 9, which show the Company’s obligations entitles the Engineer to legally terminate the Agreement.
Apart from the payment obligation, it may be difficult to show how the Company’s breach in failing to fund procurement and fabrication of devices since there was no deadline on when this was to happen.
At Legal writing experts, we would be happy to assist in preparing any legal document you need. We are international lawyers and attorneys with significant experience in legal drafting, Commercial-Corporate practice and consulting. In the last few years, we have successfully undertaken similar assignments for clients from different jurisdictions. If given this opportunity, The LegalPen will be able to prepare the legal document within the shortest time possible. You can send us your quick enquiry ( here )