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WICO CORP. v. WILLIS INDUSTRIES

July 11, 1983

WICO CORPORATION, PLAINTIFF,
v.
WILLIS INDUSTRIES, DEFENDANT.



The opinion of the court was delivered by: Shadur, District Judge.

MEMORANDUM OPINION AND ORDER

WICO Corporation ("WICO") sues Willis Industries ("Willis") for rescission and damages, alleging Willis' repudiation (Count I) and substantial breach (Count II) of two written contracts (the "Agreements," Complaint Exs. A and B). Willis has moved under Fed.R.Civ.P. ("Rule") 12(b)(6) to dismiss for failure to state a claim upon which relief may be granted.*fn1 For the reasons stated in this memorandum opinion and order that motion is denied, but WICO's prayer for rescission of the Agreements is stricken from both Counts.

Facts*fn2

WICO is engaged in the manufacture and sale of electronic components, systems and equipment used by the electronic games industry. Willis manufactures and sells silk-screen products used by that industry on video games ("game graphics") and in video game rooms ("wall graphics").

WICO's purchase commitment was to buy merchandise to the extent needed to maintain an adequate inventory. No fixed amount of merchandise was specified in either Agreement, although the wall graphics Agreement called for WICO's initial purchase of 250 sets of graphics, subject to Willis' acceptance of WICO's order.

Despite WICO's full performance, within several months after the Agreements were executed Willis first threatened to, and then in a February 18, 1983 letter (Complaint Ex. C) did, repudiate the Agreements by stating it would make direct sales in competition with WICO. In addition to that written repudiation, Willis acted in various ways to breach the Agreements.

Each Agreement contained express provisions governing termination, limited to termination for cause. No attempt was ever made by Willis to comply with those termination provisions. Indeed, no grounds existed at any time on which Willis could properly have terminated.

Willis' Potential Liability

Essentially Willis contends the Agreements allowed it to make direct sales, so they could not be "breached" by Willis' alleged repudiation and other acts. Willis relies on Section 4.01 of each Agreement (Ex. A is quoted first and Ex. B second):

  Either party may terminate this agreement for cause,
  upon 45 days written notice given to the other party,
  provided in said written notice, the grounds of
  default and or cause are set forth, and further
  provided that the defaulting party after such notice
  does not cure or otherwise take steps to cure said
  default and or cause within said period. With regard
  to the provisions of sections 3.04, 3.05 and 3.06
  respectively, the Company reserves the right to
  terminate the "exclusivity" of this Distribution
  Agreement for any uncorrected breach thereof.
  Either party may terminate this agreement for cause,
  upon 45 days written notice given to the other party,
  provided in said written notice, the grounds of
  default and or cause are set forth, and further
  provided that the defaulting party after such notice
  does not cure or otherwise take steps to cure said
  default and or cause within said period. With regard
  to the provisions of Section 3.04(f), and the
  variously established areas and assigned annual sales
  volumes in dollars, the Company reserves the right to
  terminate the "exclusivity" of this Distribution
  Agreement as to that area or areas which failed to
  achieve in sales the minimum amounts specified,
  without affecting those other areas which do
  comply.

Ex. A's cross reference to "Section 3.05" concerns the parties' joint obligation to agree on minimum sales volumes of wall graphics. Ex. B's reference to "Section 3.04(f)" incorporated an exhibit setting forth annual sales volumes of game graphics for specified geographic areas.

Willis argues (Mem. 3-4) it did not breach the Agreements because the Complaint itself reveals WICO in fact failed (1) to agree on sales quotas as required by Ex. A and (2) to meet the sales quotas required under Ex. B. That reading of the Complaint is nonsense — and also irrelevant. Ex. A § 3.05 specifically requires Willis' resort to that Agreement's termination provisions if WICO and Willis failed to agree on minimum wall graphics sales volumes. And Ex. B § 4.01 simply allows Willis to use ...


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