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Bausch & Lomb, Inc. v. Bressler

United States Court of Appeals for the Second Circuit
977 F.2d 720 (1992)
ELI5:

Rule of Law:

Express contractual provisions that specify a notice and cure period for termination following a material breach take precedence over the UCC's general remedies, which might otherwise permit immediate cancellation.


Facts:

  • Bausch & Lomb, Inc. (B & L) and Sonomed Technology, Inc. (Sonomed) entered into a 1986 agreement making B & L the exclusive distributor of Sonomed's medical devices in a specific territory.
  • The agreement required 30 days' notice and an opportunity to cure before termination for a material breach (§ 8.02), and allowed B & L to self-manufacture if Sonomed failed to make timely deliveries and did not cure within 90 days (§ 10.01).
  • From mid-1986 through 1987, Sonomed sold products within B & L's exclusive territory.
  • On April 15, 1987, B & L notified Sonomed of significant delivery defaults, triggering the 90-day cure period under the agreement.
  • On October 23, 1987, believing Sonomed had not cured the defaults, B & L sent a letter invoking its contractual right to cease purchases and begin self-manufacturing.
  • On November 3, 1987, Sonomed responded by asserting B & L's letter was a repudiation of the contract and demanded B & L provide assurance of performance by retracting the letter within two days.
  • After B & L missed the two-day deadline, it sent a letter on November 17, 1987, retracting its October 23 letter and stating its intent to resume purchases.
  • On November 19, 1987, Sonomed rejected B & L's retraction, declared the agreement terminated, and refused to accept any more orders from B & L.

Procedural Posture:

  • Bausch & Lomb, Inc. (B & L) sued Sonomed Technology, Inc. (Sonomed) in the U.S. District Court for the Eastern District of New York for breach of contract.
  • Sonomed asserted counterclaims against B & L for breach of contract and fraud.
  • Following a bench trial, the district court found that Sonomed had breached the contract and entered judgment in favor of B & L for $555,000 in damages plus interest.
  • The district court denied B & L's claims for lost profits and lost inventory value and dismissed all of Sonomed's counterclaims.
  • Sonomed (as appellant) appealed the district court's judgment on liability and damages to the U.S. Court of Appeals for the Second Circuit.
  • B & L (as cross-appellant) appealed the denial of its claim for lost inventory value.

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Issue:

Does a party's termination of a contract for an alleged repudiation constitute a material breach when the terminating party fails to comply with the contract's express 30-day notice and cure provision?


Opinions:

Majority - Walker, Circuit Judge

Yes. Sonomed's termination of the contract constitutes a material breach because it failed to comply with the contract's express 30-day notice and cure provision. While the Uniform Commercial Code (UCC) allows a party to cancel a contract immediately in response to a repudiation, parties may vary the UCC's effect by agreement. Here, Section 8.02 of the contract explicitly required a 30-day notice and cure period for any material breach, a category which includes repudiation. Sonomed's two-day ultimatum and subsequent termination violated this mandatory contractual provision. Because B & L attempted to retract its alleged repudiation on November 17, well within the 30-day period required by the contract, Sonomed's refusal to accept it and its termination of the contract was a wrongful breach.



Analysis:

This case clarifies the relationship between the default rules of the Uniform Commercial Code and specific, bargained-for contractual terms. It establishes that a clear, contractually mandated notice-and-cure procedure for termination overrides the UCC's more general remedies, such as the right to immediate cancellation for repudiation. The decision serves as a strong reminder for contracting parties that specific termination clauses will be strictly enforced, even when one party believes the other has already repudiated the agreement. It emphasizes that a party cannot ignore its own contractual obligations, like giving a specified notice period, while trying to hold the other party to its duties.

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