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Konica Medical Imaging, Inc. v. Comprehensive Medical Imaging, Inc.

03-CV-3513 (U.S. Dist. Ct. D. N.J. 2004) (Unpublished)

CONTRACTS; REPUDIATION; ADEQUATE PERFORMANCE—Failure to provide adequate assurance of due performance constitutes a repudiation of a contract only if the demand for due performance was justified.

A buyer and a distributor entered into an agreement in which the buyer was to purchase one hundred percent of its medical imaging film needs from the distributor for six years. Included in the agreement was the buyer’s estimated purchase volume. In return, the distributor would provide the buyer with discounted goods, and was required to install a number of pieces of equipment in the buyer’s facilities. Upon a default by the buyer, there was to be an early termination fee equal to twenty percent of the remaining estimated commitment.

The distributor became concerned when another company purchased its customer, and when it heard rumors that its buyer was disposing of a few of its facilities. For that reason, the distributor sent the buyer a letter requesting adequate assurances that it would continue to perform pursuant to the terms of the agreement. When its customer failed to give adequate assurances, the distributor declared it in breach.

The distributor sought the twenty percent early termination fee based on the remaining estimated commitment. In response, the buyer argued that the agreement was a requirements contract, which provides that when a buyer purchases a lesser quantity than the estimate, the purchasing obligation of the buyer is determined solely under a “good faith” standard, rather than by the estimate stated in the contract. Accordingly, the buyer argued that the demand letter was unjustified because it demanded more than the buyer was obligated to do.

The distributor argued that the agreement was not a requirements contract. It contended that the other terms of the agreement showed that the buyer was required to purchase a committed volume of goods. It argued that it would not have installed equipment in the buyer’s facilities had it not been assured that the buyer would complete its side of the agreement. The court held that it would not interpret unambiguous terms of the agreement merely to ensure that the distributor’s “backloaded” profit materialized. The agreement expressly stated that the annual purchase volume was an “estimate.” Therefore, the Court concluded that the demand letter was unjustified. It further explained that the failure to provide adequate assurance of due performance constitutes a repudiation of a contract only if the demand for due performance was justified. Since the demand letter was unjustified in this case, there was no basis for a breach of contract claim.


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