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National Utility Service, Inc. v. Cambridge-Lee Industries, Inc.

2006 WL 2726493 (U.S. Ct. App. 3rd Cir. 2006)

CONTRACTS; STATUTE OF LIMITATIONS — Continuous breaches of non-payment performance obligations under a contract, absent total repudiation of the contract, will permit claims when the initial breach of contract occurred outside the statute of limitations, but successive breaches occurred within it.

A vendor contracted with a company to review the company’s monthly utility bills and recommend cost saving changes to its services for which it would receive a percentage of the company savings both during and after the contract’s expiration (a period of 60 months from contract inception). The contract was for a three year term. One year after inception of the contract, the company stopped sending monthly utility bills to the vendor just prior to the vendor making an initial report of cost saving recommendations. A little more than one year from that point, the company told the vendor that it would no longer be able to send utility bills to the vendor and that the company considered the contract terminated. After the expiration of the three year contract term, the company entered into an agreement with a communications provider to implement a service that had originally been recommended by the vendor.

More than six years after the execution of the contract between the vendor and the company, the vendor sued the company for breach of contract by failing to submit monthly invoices for the vendor’s review after it had made initial cost saving recommendations. The vendor also sued for damages, contending it was entitled to a percentage of savings realized by the vendor’s service agreement with the communications company. After a bench trial, the lower court rejected a statute of limitations defense by the company and declared that the vendor’s claims were not time barred.

The lower court held, as also affirmed by the federal court of appeals, that the company’s failure to submit billing records and to submit a percentage of savings to the vendor were “continuing breaches” of the contract that occurred within the six year statute of limitations such as to create a cause of action that arose for each periodic breach that occurred, absent total repudiation. The Court of Appeals noted that New Jersey courts have applied the continuing breach standard to allow claims when the initial breach of a contract occurred outside the statutory period, but successive breaches occurred within it. The Court acknowledged that the doctrine has also been applied where a party has continuously breached a non-payment performance obligation. In the instant matter, the company was obligated to submit utility bills every month during the contract term, as well as to send information and invoices on as yet unimplemented recommendations after the expiration of the contract term. As it failed to do both throughout, it was found to be in continuing breach of contract within the six year statute of limitation period. The Court declined to find that a repudiation of the contract had occurred because there was no evidence that the company would not fulfill its future obligations under the contract.

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