Failure to Enforce Contract Terms Resulted in Modification

Many contracts which require payment in exchange for performance, require that the payment be made by a date certain. One would assume that the failure to pay by the agreed date would result in a breach of contract. But, this isn’t always true as the parties in the recent case of Bull Market, Inc. v. Elrafei discovered.

In Bull Market, Mr. Elrafei agreed to buy a gas station from Bull Market. Elrafei promised to make his monthly payment by the 15th day of each month. If Elrafei failed to pay as promised, then Bull Market could declare him in breach and foreclose on the gas station.

From 2009 through late 2015, Elrafei paid, albeit on irregular dates roughly within 5 days both before and after the 15th day of each month. Bull Market accepted the irregular payments without complaint until August 2015, when Bull Market suddenly returned Elrafei’s August 18th payment with a letter declaring Elrafei in breach and demanding that Elrafei abandon the gas station. Eventually Bull Market sued and obtained an eviction.

Elrafei appealed and the Court of Appeals reversed, finding that over the course of time, the irregular payments by Elrafei, and the continued acceptance of same by Bull Market, resulted in a modification of the contract’s terms. Bull Market and Elrafei created a new contract regarding the, “monthly amount, the maturity date, and the day of the month when the payments are due.” In other words, unintentionally or not, the parties had an entirely new deal.

The Court did not discuss whether or not the written contract contained a “no waiver or modification” provision, which generally provides that the failure to enforce strict compliance of an obligation doesn’t result in a waiver of strict compliance or modification going forward. It seems that had the contract at issue contained such a clause, the result may have been different. In any event, understanding all the terms of a contract is crucial and it is equally crucial to consider what omitted provisions should be included as well.