## Facts

- Questar Builders, Inc., the general contractor for a residential development, solicited bids for a flooring subcontract and selected CB Flooring, LLC for $1,120,000.
- The written subcontract required CB Flooring to provide labor and materials for carpet and resilient flooring for specified units and common areas for the project duration.
- The subcontract included (1) a “for cause” termination provision allowing termination upon subcontractor breach and (2) a termination-for-convenience provision limiting the subcontractor’s compensation to the reasonable value of authorized work and materials furnished before termination, minus prior payments.
- After execution, the interior designer changed the specified carpet to a more expensive product, creating a pricing dispute.
- Questar sought a rebid from another subcontractor and circulated an unsigned subcontract to that subcontractor before resolving CB Flooring’s pricing for the design change.
- CB Flooring requested additional compensation tied to the new carpet specification and later increased the requested amount, citing a calculation error.
- Questar terminated CB Flooring by letter stating termination “for cause” based on alleged refusal to perform, while also asserting it could terminate under the convenience clause.
- CB Flooring sued for wrongful termination and damages.

## Issues

1. Whether a termination-for-convenience clause in a private construction subcontract permits termination for any reason, including to replace the subcontractor with a cheaper bidder.
2. Whether the implied duty of good faith and fair dealing limits a contractor’s discretion to terminate for convenience.
3. Whether CB Flooring breached the subcontract so as to justify termination for cause.

## Decision

- The Maryland Court of Appeals affirmed judgment for CB Flooring.
- The court held termination-for-convenience clauses in private construction contracts are enforceable but constrained by the implied duty of good faith and fair dealing.
- The court upheld the trial court’s finding that CB Flooring did not breach; its requests for additional compensation related to a post-contract design change rather than a refusal to perform.
- The court concluded Questar could not justify termination as “for cause,” and its attempt to rely on the convenience clause failed because the termination was undertaken to obtain a better economic bargain.

## Legal Principles

- Termination-for-convenience clauses may be valid in private contracts and are not automatically void as illusory.
- Contractual discretion, including discretionary termination power, is limited by the implied duty of good faith and fair dealing.
- A party may not exercise a convenience-termination right arbitrarily, capriciously, or in bad faith, including terminating solely to secure a lower price or escape an unfavorable bargain.
- The implied duty protects the other party’s right to receive the contract’s expected benefits and prevents discretionary clauses from negating mutuality of obligation.

## Conclusion

The court held that although a contractor may bargain for a termination-for-convenience right, that power must be exercised in good faith; terminating a subcontract primarily to replace the subcontractor with a cheaper alternative violates the implied duty of good faith and renders the termination improper.


Questar Builders, Inc. v. CB Flooring, LLC, 978 A.2d 651 (Md. 2009)