Litigation attorneys Doug Smillie and Josh Gildea obtained a $5 million recovery for the firm’s client, a national distributor of pet food products, in a case filed in the United States District Court for the Eastern District of Pennsylvania. Learn more about this distribution contract dispute.
What was the contract dispute?
The dispute arose out of a distribution agreement between our client and a large American pet food company known for its fresh, refrigerated dog and cat food. The agreement between the parties contained a termination provision which required a party who terminates the agreement during its term to give 90-days’ prior notice and to pay a fee based on the previous year’s sales.
In this case, the manufacturer failed to give the required notice and refused to pay the fee. They argued that the parties had abandoned the agreement mid-stream when changes to certain terms were mutually agreed upon.
Investigating the contract dispute
After conducting paper discovery and depositions, our litigation team filed a motion for partial summary judgment asserting the evidence that the manufacturer breached the agreement was not subject to genuine dispute and that, despite the manufacturer’s arguments, there was insufficient evidence to support their position that the agreement has been abandoned by the parties.
Upon consideration of the parties’ respective contentions, the Court found, “There is no genuine dispute of material fact as to Plaintiff’s prima facie case of breach of contract. Defendants breached the letter of intent in February of 2022 when they failed to give ninety days’ notice of termination and pay the $4,986,817.10 Terminat[ion] Fee.”
In rejecting the Defendant’s arguments, the Court concluded, “[The parties’] actions during this time are consistent with the continuing existence of their business relationship and show that they did not intend to terminate their rights and duties under the [agreement]. In fact, both parties admit that they continued to ‘do business as they had done in the past’ until April 2022. Plaintiff continued to act as an exclusive distributor for Defendants’ products under the original letter of intent, and Defendants paid for Plaintiff’s distribution services and provided it with products to distribute to retailers in the pet specialty channel.”
The effects of changing a contract
Under Pennsylvania law, it is well established that parties may, by subsequent agreement, modify the terms of a written agreement. The new agreement becomes a substitute for the original, but the terms of the contract that are not modified or changed remain effective.
At the same time, rescission is a mutual agreement by the parties to an existing contract to discharge and terminate the rights and duties thereunder. An agreement to rescind a written contract need not be expressed in words but may be inferred from the actions of the parties inconsistent with the existence of the original contract.
In this case, the Court concluded that Defendant’s proffered evidence of a mutual agreement to terminate the agreement was insufficient.
Tips for avoiding a contract dispute
Contract cases can easily escalate from what the parties may perceive as a straightforward dispute into a hotly contested case to be decided based on complex legal principles. As the Court’s decision in this case demonstrates, this area of law provides opportunities for both parties to a dispute to identify and assert theories in support of their positions.
How can you avoid contract disputes? Here are a few tips for drafting contracts, specifically business agreements:
- Be specific and address situational “what ifs”– the goals of contract drafting are to avoid ambiguities and to anticipate situations which may arise so they can be dealt with in advance. In practice, businesspeople often amend or modify agreements without a full awareness of the consequences. Moreover, even if the parties had a mutual understanding at a given time, when relationships sour or disputes arise, proving the intent of a handshake agreement, which seemed clear at the time, can present significant hurdles particularly when there are substantial sums at stake. While the parties may not realize it at the time, emails, text messages, phone calls, unsigned drafts, past practices, printed terms & conditions, industry standards and verbal understandings can all come into play when a contract dispute arises.
- Be clear – the best practice is to clearly document an understanding at the outset. Business agreements do not have to be costly or complex, but they should be clear, especially with respect to core terms.
- Avoid mixing and matching – practices to be avoided include cobbling together provisions from other agreements or found on the internet, or recycling parts of previous agreements, but adding new provisions. Using terms or provisions that are unnecessary, or that the parties don’t fully understand, can lead to unintended consequences in the future. These are common, but potentially dangerous, practices for DIY legal documents.
- Seek legal counsel – having an attorney review a contract or an amendment before it is signed can go a long way to avoiding problems in the first place. At the same time, the parties need to be mindful of their agreements and adhere to what they require. Any changes or modifications should be clearly documented.
Legal support for contract disputes
Need help drafting your contracts? Our corporate attorneys can help ensure your business is properly protected with well-constructed documents. Where contract disputes arise, our litigation attorneys in Allentown, PA have the experience and knowledge to achieve the best results for our clients, as we were successful in doing this time. We are well-versed in a wide array of contractual issues faced by businesses.
Please contact us to discuss your specific challenges.
