## Facts

- Copylease Corporation of America distributed supplies for automatic copying machines; Memorex Corporation manufactured copying-machine supplies, including toner and developer.
- The parties entered a written agreement dated April 4, 1974, granting Copylease exclusive rights to distribute specified Memorex toner products within a defined territory, conditioned on Copylease meeting purchase commitments.
- Memorex agreed to sell Copylease three product categories: premium toner, developer, and “private label toner.”
- The agreement’s “initial term” was defined to commence at execution and to continue for 12 months from the date of the first shipment of private label toner, with renewal rights tied to Copylease maintaining certain purchase levels.
- No private label toner was shipped or ordered before the dispute; the parties treated the timing of any first private-label order and shipment as governed by a “reasonable time” standard under California’s UCC.
- Copylease asserted that at a November 1974 meeting it was prepared to place a private-label order but that Memorex’s conduct prevented performance and amounted to repudiation of the private-label component.
- On April 10, 1975, Memorex informed Copylease that Copylease was no longer the exclusive distributor, asserting the contract had expired or was terminable.
- Copylease sued in federal court (diversity), seeking damages and specific performance of the exclusivity obligation; the court consolidated trial on the merits with the renewed request for preliminary injunctive relief.

## Issues

1. How should the agreement’s “initial term,” keyed to the first private-label shipment, be construed when no such shipment occurred?
2. Under California UCC provisions on “reasonable time” and termination, had the agreement expired or become terminable at will by April 1975?
3. If Memorex breached an exclusive distributorship for goods, whether specific performance or injunctive enforcement is available under UCC § 2-716 and California law, given the need for ongoing cooperation and supervision.
4. Whether Copylease’s asserted inability to obtain adequate substitute toner (“cover”) constitutes “other proper circumstances” supporting specific performance.

## Decision

- The court rejected Memorex’s position that the agreement automatically ended one year after execution or was freely terminable as an indefinite-duration contract.
- The court construed the “initial term” and related provisions in light of the parties’ conduct and the disputed failure to proceed with private-label shipments.
- The court held the agreement remained in effect when Memorex purported to end exclusivity on April 10, 1975, and that Memorex’s action constituted a breach.
- In later remedial proceedings, the court recognized that specific performance of an exclusive dealing arrangement is generally disfavored where it requires extended cooperation and judicial supervision.
- Applying California law and UCC § 2-716, the court indicated specific performance could be available if the goods were effectively non-substitutable or if cover was impracticable, but required additional evidence on the availability and adequacy of substitute toners before deciding whether to order that relief.
- The court stated that if specific performance were not warranted, Copylease could still pursue money damages for breach, including lost profits if proven.

## Legal Principles

- Contract duration provisions tied to future performance are construed with reference to the parties’ contemplated performance and conduct; a party may not rely on a failure of a triggering event that it wrongfully caused or materially contributed to.
- Under California commercial law, when a contract contemplates performance within a “reasonable time,” what is reasonable depends on context and disputed facts, and does not convert the agreement into an automatically expiring or at-will arrangement as a matter of law.
- In diversity cases, the availability of equitable relief is governed by the relevant state substantive law.
- UCC § 2-716 permits specific performance not only for “unique” goods but also in “other proper circumstances,” which may include a demonstrated inability to cover with reasonable substitutes.
- Courts are reluctant to order specific performance of contracts requiring ongoing business cooperation and supervision, particularly exclusive distributorship arrangements, absent a strong showing that damages are inadequate.

## Conclusion

The court held that the exclusive distributorship agreement had not lapsed when Memorex withdrew exclusivity and that Memorex therefore breached; on remedy, the court treated specific performance as exceptional, requiring proof that substitute toner could not be obtained adequately so that damages would be insufficient under California’s UCC.


Copylease Corp. of Am. v. Memorex Corp., 403 F. Supp. 625 (S.D.N.Y. 1975)