Washington Court of Appeals Confirms Enforceability of Termination-for-Convenience Clauses and Holds that Implied Covenant of Good Faith Places No Limits on Express Termination-for-Convenience Clauses
By D.C. Wolf, Brad Lewis, and Jesse O. Franklin, K&L Gates, Seattle
The contract law concept of a “termination for convenience” allows one contracting party to terminate a contract that has become inconvenient or unnecessary and settle with the terminated party for partial performance. The doctrine originated during the U.S. Civil War to give the Union government flexibility when quickly changing battlefield conditions rendered a planned project or procurement overly costly or no longer necessary.
In its recent decision in SAK & Associates, Inc. v. Ferguson Construction, Inc., No. 72258-1-1, 2015 WL 4726912 (Wash. Ct. App. Aug. 10, 2015), the Washington Court of Appeals, Division One, given very limited existing authority, clarified that partial performance of a construction project is sufficient consideration to support a termination-for-convenience clause and rejected the argument that the implied covenant of good faith and fair dealing limits a party’s ability to invoke such a clause.