I always get a kick when, after reading a case, you get a laugh out of its name. That’s one of many takeaways from the Connecticut Supreme Court’s recent decision in RBC Nice Bearings, Inc. v. SKF USA, Inc., a Uniform Commercial Code case. These types of cases can only be interesting to UCC geeks like me. Somehow, distributor agreements, contracts, and minimum purchase requirements make it feel like Christmas. But seriously, the case is a great read for Article 2, franchise and distribution lawyers. It’s chock-full of fun UCC concepts like waiver and course of performance.
There are a few informative points in this opinion. Right now, I am only going to address one. Check back later for more. Let’s just say for now that the plaintiff should not have been so “nice.” If it hadn’t been so nice, it might’ve won this case.
Plaintiff and defendant had a sales and supply agreement covering an eight-year term. Initially, the contract required the defendant to purchase $9 million of the plaintiff’s ball bearings every year. Defendant could not keep up with that purchase requirement, resulting in a written modification of the agreement after the third year or so. The modification reduced the defendant’s minimum purchase obligation to $6 million and allowed for other market adjustments.
Well, guess what? Defendant still could not keep up with the purchase minimums, but the plaintiff was very nice and turned the other cheek. Plaintiff was so nice, that for 3 to 4 years in a row it never insisted that the defendant comply with its contractual obligations. Even though the plaintiff would issue shortfall invoices to the defendant each year its purchase amounts fell short, plaintiff really did nothing until midway through the 6th year when it terminated the contract with a few years left to go.
An interesting point that will help me end today’s post. At some point, in fact the court’s opinion says “for some time,” the plaintiff wasn’t thinking so nicely about the contract and the defendant. In fact, it had been exploring the possibility of terminating the contract and selling directly to consumers. The CSC must have gotten a kick out of this case like me because it quoted the following testimony from the plaintiff’s CEO: “I don’t want to end the contract this year. Play nice!”
This case is a nice, little lesson – pardon the pun – in the psychology of contracting parties’ behavior. Maybe defendant was being so nice because it felt guilty that it was secretly planning to terminate the contract and eliminate the defendant- middleman, and that’s why it put up with the defendant’s failure to meet the purchase requirements to the tune of millions of dollars. Well, as you read next time, this came back to bite the plaintiff. Can you say waiver?