Leibel v Raynor - Brief PDF

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Leibel v. Raynor Manufacturing Co. COURT AND DATE: Kentucky Court of Appeals (1978) PROCEDURAL HISTORY: Trial Court: Granted Raynor’s motion for summary judgement. ISSUE: When a contract for the distribution of goods does not provide a specified duration, is the party terminating the agreement required to provide reasonable notice of termination? TRIGGER FACTS: James Leibel (plaintiff) orally agreed to be the distributor of garage doors manufactured by Raynor Manufacturing Co. (Raynor) (defendant) for the Lexington, Kentucky area on March 1, 1974. Leibel borrowed money to do the tasks necessary to perform under the agreement. The parties did not agree to a specified time when the agreement would end. After two years, Raynor notified Leibel by letter that it was terminating the agreement. The letter stated that termination was effective immediately. Leibel filed suit. Raynor moved for summary judgment, arguing that the agreement was for no fixed duration and could be terminated at will by either party. Leibel argued that he was entitled to reasonable notice before termination. The trial court granted Raynor’s motion, finding that Raynor only needed to provide actual notice. The court reasoned that the Uniform Commercial Code (UCC) did not apply to the agreement, but even if it did, Raynor was not obligated to give reasonable notice, only actual notice. Leibel appealed to the Kentucky Court of Appeals. PLAINTIFF’S MAIN ARGUMENTS: DEFENDANT’S MAIN ARGUMENTS: RULE (the law): Under the Uniform Commercial Code, when a contract does not provide a specified duration, the party terminating the agreement must provide reasonable notice of termination. HOLDING + REASONING: Yes. Raynor was obligated to give Leibel reasonable notice of its intent to terminate the agreement. Article II of the UCC applies to contracts for the sale of goods and merchandise. A court must look to the actual nature and purpose of a contract to determine whether the UCC is applicable. The question of whether a distributorship contract is a transaction involving the sale of goods is one of first impression in Kentucky. Thus, a distributorship agreement is a contract for the sale of goods, not a service contract, and the UCC controls. Under Article II of the UCC, when a distributorship agreement does not provide that the agreement is for a specified duration, the contract is valid for a reasonable time. Further, absent agreement to the contrary, either party may terminate at any time. A party terminating the contract must provide reasonable notice, unless otherwise agreed. An agreement dispensing with the notice requirement will be enforced unless unconscionable. What constitutes “reasonable” notice is a question material fact. Principles of good faith and fair play require that a dealer, who may be required to maintain a large inventory, be given notice in a reasonable time to sell that inventory

and avoid major losses before termination. In this case, Leibel was a distributor of Raynor’s garage doors, not a salesperson or employee. Therefore, the contract was a distributorship agreement and is subject to the requirements of Article II of the UCC. The trial court’s determination that the UCC did not apply was erroneous. Raynor was required to provide reasonable notice. Raynor gave actual notice of the immediate termination of the agreement, but this notice cannot be held reasonable as a matter of law. The amount of time that was required for notice to be reasonable in this case is undecided. Because a question of material fact still remains, the trial court’s grant of summary judgment was improper. Accordingly, the trial court is reversed, and this case is remanded for further proceedings....