• The Devil's in the Details: Exercising Your Contractual Rights
  • November 2, 2008 | Author: Anthony C. Valiulis
  • Law Firm: Much Shelist Denenberg Ament & Rubenstein, P.C. - Chicago Office
  • There are many instances in which you might have a particular contractual right that depends on the exercise of certain conditions. Perhaps you have a right to extend or terminate a lease, or to renew a contract. You might also have an option to purchase a piece of property. In each of these scenarios, of course, you are required to take certain actions in order to exercise your rights. For example, you might have to provide written notice within a certain period of time. That notice might have to be sent by registered mail or delivered personally. It might also have to contain certain language. More often, however, the notice simply has to be in writing and delivered within a particular number of days.

    What often happens is that one thing leads to another, and before you know it, you have missed the deadline entirely. If you have to send the notice out a day or two late, does that really matter? Surely not one or two days.

    Or maybe you still have time but not enough for a written notice. Say you are forced to call the other party and substitute oral for written notice. If the other side was not prejudiced and received notice (albeit oral) within the specified time frame, how much can it really matter?

    Quite a bit, actually. As the Illinois Appellate Court held recently in Genesco, Inc. v. 33 N. LaSalle Partners LP, 889 N.E.2d 769 (1st Dist. 2008), the general rule is that conditions--such as options to terminate a lease--demand strict compliance. Thus, if the option requires a written notice, then oral notice is not sufficient. Similarly, if the notice must be given within three days, then anything beyond that time frame means you forfeit the option. It bears repeating that strict compliance is the general rule! If a party fails to comply, for example, by making a phone call when written notice is required, then he or she is out of luck--even if there has been no prejudice to the other side as a result.

    Considering the severity of this general rule, it is wise to review your documents very carefully and make sure you understand and comply with the conditions contained in them. If there is any ambiguity, you should seek legal counsel in order to make sure you are in strict compliance.

    But as with all general rules, there are exceptions. The law may be a harsh taskmaster, but it also recognizes that equity should step in at times. Although the law in this area is somewhat unclear, the courts will excuse strict compliance under certain, limited circumstances. In a lease situation, for example, some courts (including the Illinois Appellate Court in Thomas Learning, Inc. v. Olympia Properties LLC) have held that if a lessee fails to strictly comply with its right to cancel or extend a lease, the lessee might not be held to strict compliance if at a minimum the lessee establishes three things:

    1. That the delay was slight
    2. That the lessee would suffer undue hardship if strict compliance were upheld
    3. That the lessor would not suffer prejudice

    What constitutes an "undue hardship" is not clear. The Genesco case emphasized that the full amount of rent that the lessee would incur by not terminating the lease would not necessarily constitute undue hardship. The court pointed out that the lessee could subsequently breach the lease, thereby requiring the lessor to mitigate its damages.

    In any event, the Genesco court stressed that this equitable exception should not be relied on by the courts or the public and should be used only for the truly appropriate cases. Indeed, the concurring opinion picked up on this point and took it a step further, maintaining that the equity powers of a court should be used only when there has been "avoidable accident, fraud, surprise or mistake."

    The moral of this story is simple: strict compliance is the rule and equitable relief the exception. No matter which side of an agreement you are on, you and your counsel should examine your documents carefully to make sure that all parties follow closely the contractual requirements. By remaining in strict compliance, you preserve any options you might have. Conversely, if someone tries to exercise an option against you, you may be able to thwart those efforts if the party has not strictly complied with all of the applicable conditions.