The opinion of the court was delivered by: LASKER
MEMORANDUM, FINDINGS OF FACT AND CONCLUSIONS OF LAW
In this diversity action, Copylease Corporation of America (Copylease) seeks specific performance and damages for breach of contract from Memorex Corporation (Memorex). Pursuant to Rule 65(a)(2), Fed.R.Civ.P., trial on the merits was advanced and consolidated with the hearing on Copylease's renewed application for a preliminary injunction.
Memorex manufactures goods used in the operation of automatic copying machines and Copylease distributes and sells such goods. On April 4, 1974 the parties
entered into a contract whereby Memorex agreed to sell three types of products to Copylease, Memorex Premium Toner, Memorex Developer and private label toner. The contract was to run for an "initial term," defined to commence on the date of execution and to "continue for a period of 12 months from the date of the first shipment of [private label]," and granted Copylease the right to renew for successive twelve month periods provided that it maintained a certain level of purchases.
This case turns on the interpretation of the apparently simple definition of "initial term" in the context of the rocky relationship which developed between the parties shortly after they entered into the contract and on the legal significance of Copylease's renewal rights.
As it turned out no private label was shipped, or even ordered, prior to the alleged breach on April 10, 1975. Both parties agree that under § 2309(1) of the Uniform Commercial Code of California
(the contract specifies it is to be governed by California law) the first shipment, and therefore the order, is required to take place within a "reasonable time."
Memorex contends that under the contract, a reasonable time could in no circumstances be greater than one year, and that the contract therefore expired on April 4, 1975. It also asserts that under Cal.U.C.C. § 2309(2)
it had the right to terminate the contract at will because the contract is indefinite in duration.
Copylease counters that at a meeting in November, 1974, it was prepared to place an order for private label and was prevented from doing so by Memorex's repudiation of the contract. Further, Copylease argues that on April 21, 1975, only 17 days after the first anniversary of the contract's signing, it communicated to Memorex in writing its desire to order private label and requested assurances, which were not forthcoming, that such an order would be fulfilled. It is the position of Copylease that Memorex's repudiation of the contract in November discharged Copylease from the obligation to order private label. Alternatively, Copylease claims that in light of the history of the contractual relationship, it was reasonable that its written demand for assurances was not made before April 21, and that the initial term had therefore not expired. Finally, Copylease maintains that the contract is not of indefinite duration within the meaning of Cal.U.C.C. § 2309(2).
A. The Pre-November Relationship
Pursuant to the terms of the contract Memorex began shipping Memorex Toner to Copylease on a regular basis. (Ex. 4) During the course of their dealings, however, certain frictions arose. (Tr. 10, 35) Copylease complained of an attempt by Memorex to establish another dealer in the territory of its exclusive. (Tr. 10; Ex. 2) Memorex objected to attempts by Copylease to expand the coverage of the exclusivity provision beyond the provisions of the contract. (Tr. 39-40; Ex. E) There were also disagreement on price and complaints by Copylease about what it perceived to be discriminatory treatment in comparison to other Memorex dealers. (Exs. B, C & D) By late October, 1974 mutual dissatisfaction with the course of the relationship had reached a point at which both sides agreed that a meeting was necessary to resolve their differences. (Exs. C & D)
The meeting was held in late November at the Minneapolis offices of Copylease. It was attended on Memorex's behalf by Warren King, General Manager, George Cotroneio, National Sales Manager, and the corporate counsel, Daniel Leckrone. Copylease was represented primarily by its President, Herbert Getzler, and its counsel, Alan Shalov, but there were four or five other employees on hand. It was understood that the purpose of the meeting was to discuss the clarification and possible modification of the contract, although the primary impetus for modification came from Memorex. (Tr. 18-19, 114-16; 211) Copylease, as is understandable from a reading of the document, was not unsatisfied with the terms of the contract, but was willing to negotiate changes if Memorex offered an attractive quid pro quo. (Tr. 18-20; Ex. 8)
The meeting was consumed largely by an airing of complaints and proposals for a revision of the contract. Tempers flared more than once, each side feeling that the other had been and was continuing to be unreasonable. (Tr. 26, 121, 124, 154, 167, 182, 212) Shortly after the meeting started Memorex accused Copylease of being in breach of the contract for failure to purchase a monthly quota of Memorex Toner and for selling the products of other manufacturers. Copylease rejoined that the contract set no monthly quota, that in any event, it had purchased much more Memorex ...