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John Deere v. Reliable-prospective statute application

Maryland Court of Appeals applies statute to contract terminable on short notice

            In John Deere Construction and Forestry Co. v. Reliable Tractor Inc. on a certified question from United States District Court for the Middle District of Georgia, the Maryland Court of Appeals on September 15, 2008 held that a contract which was terminable by either party on 120 days notice was a series of implied 120 day contracts for the purposes of holding that a statute created after the formation of the contract, the Maryland Equipment Dealer Act, applicable to the contract between the parties. 

            John Deer and Reliable entered into a contract in 1984.  In 1987, the Maryland Equipment Dealer Act was enacted.  The Court of Appeals found that the statute, the Maryland Equipment Dealer Act, was intended to be prospective only.  Generally, prospect law applies only to contracts entered into after the effective date of a prospective new law.

            In finding a way to apply the Act to the contract, the Court made the holding.  The Court of Appeals rationalized that “In this case, the contracts, by their terms, could be terminated by either party at any time without good cause, merely by providing 120 days notice. It is logical, then, that neither party could reasonably expect the contracts to continue for more than 120 days from any given date. Once the statute was enacted, the parties were on constructive notice of its existence. (citation omitted)  By continuing to perform their obligations under the contracts without providing notice of termination, the parties effectively renewed their contracts consistent with the applicable law in effect at the time.”  Opinion p. 8.

            In a dissenting opinion, Judge Harrell (to which judge Murphy and Cathell joined) preferred adopting the “fresh decision” standard of Bitronics Sales Co. v. Microsemiconductor Corp. 610 F. Supp/ 550 (D. Minn. 1985).  In a factually similar case the court in Bitronics determined that the parties would have show mutual assent or “the necessary “fresh decision” by either having entered into negotiations for a new agreement after the effective date of the statute or regulation, or renewing a contract that terminated on a specific date subsequent to the effective date of the statute or regulation.”  Judge Harrell noted “The Majority opinion strains to “conclude that applying the good cause provision to these contracts is not a retrospective application, but rather a prospective one.” Majority slip op. at 8. In reaching this conclusion, the opinion errs in two significant respects, in my view.  First, it extends well beyond any Maryland precedent the principle that generally laws existing at the time of entering into a contract become part of that contract. Second, the Majority opinion improperly equates the making of a contract with the mere continuance of performance under an already existing open-ended contract, in direct contradiction to settled authority drawing a clear distinction between the two.”  Dissenting opinion at p. 1. 

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