New York District Court Upholds Termination of Vendor on Grounds of Insufficiency of Offer of Cure

Sinco, Inc. v. Metro-North Commuter Railroad Co.,
99 Civ. 10631 (AKH), 2001 U.S. Dist. Lexis 1986 (S.D.N.Y. March 1, 2001)

The district court considered whether a tender so defective as to undermine the buyer’s confidence in seller’s ability to cure renders the seller’s attempts to cure futile. The court declined to adopt the “shaken faith” or “loss of confidence” doctrine to relieve the buyer of a fall protection system for the safety of its workers from its contractual duty to accept the seller’s attempted cure. Ultimately, however, the court granted summary judgment to the buyer after finding the seller’s attempts to cure were ineffective.

The dispute arose from the renovation of Grand Central Terminal by the Metro-North Commuter Railroad Co. (“Metro”). Because the renovations posed a great safety risk to the maintenance and renovation workers involved, Metro requested bids for a fall protection system for its workers on the project. Metro accepted the bid of Sinco., Inc. (“Sinco”) to construct a reliable fall protection system for $197,325. The contract emphasized the importance of the reliability of Sinco’s product.

Sinco installed its fall protection system involving harnesses worn by Metro workers. During a training session of Metro’s employees by Sinco, part of the harness system fell apart in the hands of a Metro employee. Within two days, Sinco delivered to Metro two different types of replacement parts and a videotaped stress test on the parts. Metro rejected this attempt by Sinco to cure its defective performance. Sinco suggested various other methods to cure the defects of its product, all of which Metro rejected. Metro terminated its contract with Sinco and paid $323,685.99 to a replacement contractor to complete the fall protection system.

Sinco brought suit against Metro for breach of contract and Metro counterclaimed for the cost of its cover. The court applied New York’s Uniform Commercial Code to determine whether Metro was required to accept effective attempts to cure. Specifically, the court considered 1) whether New York courts would apply the “shaken faith” doctrine to render all attempts to cure futile; 2) whether Sinco’s attempt to cure was effective; and 3) whether Sinco’s suggestions for cure constituted attempts to cure.

The district court determined that, under New York law, the “shaken faith” doctrine does not relieve a buyer of its duty to accept effective attempts by a seller to cure a defective tender. The court emphasized that both fairness and specific contractual language obligated Metro to provide Sinco the opportunity to cure defective performance. The court found no basis under New York law to allow Metro to terminate the contract without allowing Sinco an opportunity to cure, despite the lingering misgivings of Metro employees as to the reliability of the fall protection system.

However, the court held Sinco never offered Metro an effective cure obligating Metro to accept Sinco’s performance. Because Sinco contracted to provide a demonstrably reliable fall protection system, the court determined that Sinco had not only a duty to provide a reliable system, but also, to demonstrate its reliability. The court found the video-taped stress test performed by Sinco did not constitute objective evidence of reliability and that Metro rightfully rejected this attempt by Sinco to cure. Moreover, the court determined that mere offers by Sinco to cure employing various methods did not constitute acceptable attempts to cure, which could only be effected by putting “a fall protection system and proof of its reliability at Metro-North’s disposition, leaving it to Metro-North to accept the tender.”

Having found that Metro justifiable rejected Sinco’s ineffective tender, the district court granted summary judgment in favor of Metro.

This entry was posted in Breach of Contract, Termination and tagged , , , . Bookmark the permalink.