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Ticona Polymers, Inc. v. Solutia


September 11, 2008


On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-3269-02.

Per curiam.


Argued February 27, 2008

Before Judges Axelrad, Sapp-Peterson and Messano.

Defendant, Solutia, Inc. (Solutia) appeals from the trial court orders granting summary judgment dismissing the first five counts of its counterclaim against plaintiff, Ticona Polymers, and granting declaratory judgment relief in connection with the interpretation of its contract with plaintiff. Defendant also appeals the court's order, issued sua sponte, bifurcating the declaratory judgment action from defendant's counterclaim. We affirm.

The following facts are largely undisputed. In 1980, plaintiff's predecessor company, Celanese Corporation, and Monsanto Company, defendant's predecessor company, entered into a Nylon Salt Sales Contract (the contract), in which plaintiff agreed to purchase all of the nylon salt it required from defendant. Nylon salt is the raw ingredient utilized to manufacture nylon polymer. After purchasing the nylon salt, plaintiff polymerized it and then molded the resulting nylon polymer into nylon resins as part of its nylon plastics and resins business, which it sold on the open market.

The contract, known in the industry as a requirements contract, was expressly governed by Missouri law. It did not contain any minimum amount of nylon salt that plaintiff was required to purchase from defendant, but did specify the maximum amount that defendant was obliged to supply to plaintiff. It also contained a formula for determining the price at which defendant would sell the nylon salt to plaintiff. An additional provision allowed plaintiff to purchase nylon salt from another source at a lower price, as long as defendant was given an opportunity to match that price. Another key provision of the contract called for each party to give advance notice of its intent to terminate the agreement.

On August 31, 1989, defendant gave notice to plaintiff of its intent to terminate the agreement. However, before that termination occurred, the parties agreed to further amend the contract. Effective July 23, 1993, defendant's notice of termination was deemed withdrawn and the contract was amended for the final time. According to this amendment, the contract was to run until August 31, 2004, and was to continue thereafter unless terminated on forty-eight months' written notice by either party. The amendment again modified the formula for determining the price at which the nylon salt was to be sold. The new formula was to be effective on September 1, 1994. The amendment did not make any further modifications to the "quantities" provision of the contract. However, the amendment did replace the "assignment" provision of the original contract with the following language:

ASSIGNMENT: Except for an assignment to a party's wholly-owned subsidiary, neither party shall (by operation of law or otherwise) assign its rights or delegate its performance hereunder without the prior written consent of the other party, and any attempted assignment or delegation without such consent shall be void.

Following the 1993 amendment to the contract, defendant reinvested its capital and expanded its facilities to manufacture the ingredients of nylon salt.

On April 17, 2002, plaintiff wrote to defendant that it was canceling the parties' nylon salt contract. Plaintiff claimed that this was intended to be the requisite four-year notice under the contract. The decision was made in order to reduce plaintiff's costs and improve the profitability of its nylon business. During the two-year period leading up to plaintiff's termination notice, plaintiff attempted to negotiate a price relief under the contract, but defendant only agreed to two temporary price modifications. Plaintiff had considered a number of different options, including purchasing already-manufactured polymer. Its board ultimately recommended that plaintiff negotiate a deal with Dupont Chemical Company (Dupont) for polymer and that plaintiff "exit" the polymer manufacturing arm of its business, with the possibility of "exiting" the entire nylon business in the future.

On May 8, 2002, Michael Berezo, defendant's Director of Nylon Intermediates, wrote to plaintiff, advising that defendant

(1) did not object to the sale of plaintiff's nylon business to a third party as long as the sale included an assignment of the existing contract, (2) would consider plaintiff in breach of the contract if plaintiff purchased nylon polymer from an entity other than Solutia, and (3) had "spent considerable expansion capital to ensure a reliable supply of Nylon Salt to Ticona." The letter concluded with the following statement:

[W]e have worked with Ticona to develop modifications to the Nylon Salt contract such as significant price concessions and a Nylon Salt Conversion Provision to support your business during the difficult business conditions we have all faced recently.

In short, we feel as if we have been responsive to Ticona's requests for support and any consideration of alternatives for your Nylon business which don't include Solutia Nylon Salt are not consistent with this spirit of cooperation and violate the spirit and letter of the contract. If you wish to discuss this further or have any questions concerning this obligation, please let . . . me know.

On July 16, 2002, plaintiff filed a declaratory judgment action in the Law Division against defendant Solutia, Inc., seeking a declaration

A. That Ticona has the right to purchase polymer and to reduce its requirements of Nylon Salt to zero, and that Ticona's purchase of polymer from a third party is not a breach of the Nylon Salt Agreement.

B. That Ticona's proposed sale of its nylon plastics and resins business to a third party without the Nylon Salt Agreement, and that the resulting decrease in or elimination of Ticona's requirements for Nylon Salt are not in breach of the Nylon Salt Agreement.

After the court denied defendant's motion to dismiss the complaint pursuant to Rule 4:6-2, defendant filed its answer, affirmative defenses, jury demand and a six-count counterclaim against plaintiff. The counterclaim alleged breach of contract (Count I), breach of implied covenant of good faith and fair dealing (Count II), anticipatory breach of express terms of contract (Count III), anticipatory breach of implied covenant of good faith and fair dealing (Count IV), equitable recoupment (Count V), and action on account (Count VI). Thereafter, the parties proceeded to exchange discovery,

On June 6, 2003, the court conducted oral argument on a discovery motion filed by defendant for the issuance of letters rogatory pursuant to Rules 4:11-5 and 4:12-3. At that time, the court posited to defense counsel that the discovery defendant was seeking may be "for naught" if a "jury comes back and says that salt and polymer are two different things[.]" In response, defense counsel stated, "Well, that's true[,] Your Honor. I believe that is probably true. But that's -- that's the case in any litigation." Then, the following exchange occurred:

THE COURT: Not if I bifurcate it, which is what I want to do. Because then you don't have to spend hours, and hours, and hours, on discovery of damages which you may never get to. Doesn't that make sense?

[DEFENSE COUNSEL]: Certainly, Your Honor. That's not something that we had discussed before, bifurcating that issue from this trial. You know, our position was that if this was being tried as a single case before a jury --

THE COURT: there was nothing --

[DEFENSE COUNSEL]: -- and we would need to do this discovery --

THE COURT: There was nothing prohibiting either you or you coming to me and saying, why don't we cut this down into two bite-size pieces? We'll do the liability portion first, and we'll do the damages portion second. And you can either waive a jury, and I can decide it, or we'll pick a jury and they'll decide, because it's a fact question or interpretation of whether salt is the same as polymer. And then the discovery will be whether they breached the contract by purchasing salt.

But the question of what was the structure? What was the pricing? How was it to be done? You don't need that until you find out whether the polymer is in or out of the deal. And you'll find that out at the liability stage of the trial. Then after the liability stage of the trial, relevancy becomes right to the forefront, I'm sure. If polymer is in, then you may [be] entitled to lots of things.

[DEFENSE COUNSEL]: And in bifurcating the trial, are we also bifurcating till after this initial decision on whether it's salt or polymer? Are we bifurcating our counterclaim? Because I think if we're going to try the --

THE COURT: Well the counterclaim is basically the damages that they got around the contract, all right?



[DEFENSE COUNSEL]: But there's --

THE COURT: -- if the contract is interpreted in the DJ that polymer is out, then whether they tried to buy polymer through Johannesburg by way of Antwer [sic] back to you doesn't matter. They could buy it any way they wanted to. If salt is in, which nobody disputes that, and you -- and then you're entitled to discovery that they did buy 42 tons of salt when they should have b[]ought it from you, there's your proof. They breached the contract.

So, they're number one question on liability is did they breach the contract or not? Which is the first level inquiry. You don't have any dispute on your discovery on that. And --

[DEFENSE COUNSEL]: I don't believe so, no.


At the conclusion of the motion hearing, the court directed plaintiff's counsel to send the court "an order after you have your adversary sign off on it[;] that would be great." The court signed the form of order on July 1, 2003, which included a provision for bifurcation of the declaratory judgment claims for discovery and trial purposes from defendant's counterclaims. Although the order notes that the motion was opposed, as the record confirms, there was only opposition to defendant's demand for the issuance of letters rogatory. Neither attorney objected to the court's bifurcation proposal.

Three months later, plaintiff moved for partial summary judgment, urging that it was under no contractual duty to assign its contract to a purchaser of its business, it was not obligated to purchase nylon polymers from defendant, and that the contract related solely to its purchase of nylon salt, not nylon polymer. Defendant filed opposition to the motion nearly two years later, in July 2005.*fn1 In opposing the motion, defendant urged that nylon salt has no other use than to be polymerized into nylon polymer, and because polymer is directly produced from salt, plaintiff was not free to purchase nylon polymer from a third party.

The court, in a written opinion, granted plaintiff's motion. The court found that the terms of the contract imposed no obligation upon plaintiff to assign the contract to a purchaser of its business, defendant's filings with the Security and Exchange Commission (SEC) differentiated between nylon salt and polymers, and that during the time when plaintiff was purchasing nylon salt from defendant, it also sought to purchase polymer from defendant; however, because of contractual restrictions imposed upon defendant by Dow, to whom defendant supplied nylon polymer, it refused to sell nylon polymer to plaintiff.

The court also found that even if plaintiff's discontinuation of its polymer manufacturing operation were motivated by salt increases and plaintiff's desire to improve its profits, the law does not require that plaintiff go out of business before terminating its business relationship with defendant. Rather, the court concluded that in a requirements contract with no minimum purchasing requirements, the seller bears the risk that the buyer's needs will vary, and the law only requires that the buyer act in good faith in connection with its business decisions.

Further, the court also rejected defendant's claim for equitable recoupment based upon its claimed $400 million in capital expenditures expended in part in reliance upon the contract. The court reasoned that under Missouri law, the doctrine only applied in the context of a franchise, exclusive agency, or distributorship agreement, which was not the contractual relationship between plaintiff and defendant. In addition, the court concluded that even if the doctrine were applicable, defendant's documents "make clear that it undertook these capital investments to satisfy its own needs for nylon salt, and not for Ticona's needs under the Contract. As such, Solutia was not 'induced by [its] appointment.' Thus, the doctrine of equitable recoupment is not available to Solutia."

Defendant moved for reconsideration of both the court's March 6 order and the earlier July 1, 2003 order directing bifurcation. The court denied the motion. On November 17, 2006, the court granted defendant's unopposed motion for a voluntary dismissal of Count VI pursuant to Rule 4:37-1(b). Defendants' timely appeal followed.

Defendant raises the following points for our consideration:





At the outset, although the contract at issue is to be interpreted under Missouri law, the disposition of the procedural issues of bifurcation and summary judgment are governed by the procedural law of the forum state. Our courts will honor parties' contractual choice of which law will govern their agreement "if it does not violate New Jersey's public policy[.]" N. Bergen Rex Transp. v. Trailer Leasing Co., 158 N.J. 561, 568 (1999) (quoting Instructional Sus., Inc. v. Computer Curriculum Corp., 130 N.J. 324, 341 (1992)) (internal quotation mark omitted). However, "the procedural law of the forum state applies even when a different state's substantive law must govern." Id. at 569 (citations omitted). Consequently, "when parties have adopted an otherwise valid choice of law provision in an agreement, that provision will not govern when an issue is procedural." Kramer v. Ciba-Geigy Corp., 371 N.J. Super. 580, 601 (App. Div. 2004) (citation omitted). In that regard, bifurcation of liability and damages is governed by Rule 4:38-2(b) while summary judgment is governed by Rule 4:46-2.


We first address plaintiff's appeal of the bifurcation order, which was the product of another judge's sua sponte decision. There was no objection raised to the court's proposal from either party's attorney at the time the court first posited bifurcation as an approach to avoid potentially protracted and unnecessary discovery. We note further that the court invited counsel to "let [the court] know what your discovery plan is." Further, both counsel, during the June 6, 2003 oral argument, agreed with the court's assessment:

THE COURT: So, they're number one question on liability is did they breach the contract or not? Which is the first level inquiry. You don't have any dispute on your discovery on that. And --

[DEFENSE COUNSEL]: I don't believe so, no.


The judge also told counsel that if they could resolve the discovery issues without the assistance of the court "that would be appreciated. If you can't, we'll do it, ok?"

Under Rule 4:38-2(b), bifurcation of the issues of liability and damages is within the sound discretion of the trial judge, and the exercise of this discretion should not be disturbed on appeal absent an abuse of such discretion. Thompson v. Merrell Dow Pharm., Inc., 229 N.J. Super. 230, 255 (App. Div. 1988). Ordinarily, bifurcation of liability and damages should not be ordered if the issues are intertwined. Tobias v. Cooper Hosp. Univ. Med. Center, 136 N.J. 335 (1994). As we discuss below, the issues of liability and damages in the present matter were not intertwined to the point that plaintiff was prejudiced by the bifurcation order. We therefore find no abuse of the court's discretion in sua sponte ordering bifurcation.


Turning to defendant's claim that the court erred in granting summary judgment, Rule 4:46-2(c) provides:

The judgment or order sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and the moving party is entitled to judgment as a matter of law.

Our review of the grant or denial of a summary judgment motion is de novo and we "employ the same standard that governs trial courts in reviewing summary judgment orders[,]" Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998), but "[a] trial court's interpretation of the law and the legal consequences that flow from established facts are not entitled to any special deference." Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366, 378 (1995).

The contract at issue was governed by Missouri law and required that plaintiff purchase its salt requirements from defendant. Such a contract is known within the commercial industry as a requirements contract that is addressed in the Uniform Commercial Code (UCC), which Missouri has adopted. Specifically, Section 2-306(1) of the Missouri Annotated Statutes provides:

A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded. [Mo. Ann. Stat. § 400.2-306(1).]

Missouri thus recognizes and enforces requirements contracts, which are defined as contracts in which "one party promises to supply all the specific goods or services which the other party may need during a certain period at an agreed price, and the other party promises that he will obtain his required goods or services from the first party exclusively." Kirkwood-Easton Tire Co. v. St. Louis County, 568 S.W.2d 267, 268 (Mo. 1978). A requirements contract obligates the buyer to purchase all the goods it will need for a particular use contemplated by the parties and to purchase those requirements exclusively from the seller. 2A Ronald A. Anderson, Uniform Commercial Code §§ 2-306:27 and 2-306:29 at 472-73 (3d ed. 1997). The contract must identify the need for which the goods will be required, id. at § 2-306:31 at 475, but does not have to specify a minimum purchase. Id. at § 2-306:36 at 476.

Although the Missouri Legislature did not adopt the official comments to the UCC, the comments "have been relied upon to explain the meaning intended by the drafters of article 2 and are useful indicators of the drafters' reasoning." Guess v. Lorenz, 612 S.W.2d 831, 833 n.2 (Mo. Ct. App. 1981). They "are a permissible and persuasive aid in determining legislative intent." Groppel Co. v. U.S. Gypsum Co., 616 S.W.2d 49, 57 n.7 (Mo. Ct. App. 1981).

According to U.C.C. § 2-306, Official Comment 1, requirements contracts are subject to the general approach of the UCC, "which requires the reading of commercial background and intent into the language of any agreement and demands good faith in the performance of that agreement." Ibid. (reprinted at 1A U.L.A. 413 (2004)). Moreover, under Comment 2 of this section, such contracts do not lack mutuality of obligation because the party who will determine quantity is required to operate his plan or conduct his business in good faith and according to commercial standards of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure. Reasonable elasticity in the requirements is expressly envisaged by this section and good faith variations from prior requirements are permitted even when the variation may be such as to result in discontinuance. A shut-down by a requirements buyer for lack of orders might be permissible when a shut-down merely to curtail losses would not. The essential test is whether the party is acting in good faith.

The question of whether a requirements contract continues in effect when a business enterprise is sold "is outside the scope of this Article, and is to be determined on other principles of law." U.C.C. § 2-306, Official Comment 4 (reprinted at 1A U.L.A. 414).

In the instant case, defendant did not dispute that (1) the contract did not specify the numerical minimum amount of salt Ticona was required to purchase from defendant; (2) the contract concerned solely the purchase of nylon salt, not nylon polymer; (3) nylon salt and nylon polymer are different commodities with different chemical properties; (4) defendant's filings with the SEC stated that nylon salt and nylon polymer are different materials in different markets; (5) by early 2002, Ticona's parent company concluded that plaintiff could no longer achieve long-term acceptable returns in its nylon business, and directed it to exit the nylon business; (6) plaintiff attempted to solicit a bid from other entities, including defendant, to purchase part or all of its nylon business, but was unsuccessful in accomplishing a sale to defendant; (7) the decision to shut down its polymer manufacturing business involved consideration of a number of factors, including the expense of maintaining the equipment and required additional costs; (8) by discontinuing its polymer manufacturing facilities, plaintiff eliminated volatile variable costs associated with energy and raw materials required to manufacture nylon polymer; and (9) defendant had no documents to support its contention that its capital investments in its nylon operations were undertaken to support its continued supply of salt to plaintiff.

Here, admissions by defendant for the purpose of summary judgment raised no genuinely disputed issues of fact as to the nature and uses of the two products. Further, defendant's acknowledgment that plaintiff's decision to exit the polymer manufacturing business was motivated by a business decision to reduce costs and ultimately improve its profitability, and its acknowledgment that plaintiff sought to purchase nylon polymer directly from it demonstrates a good faith effort by plaintiff to continue its business relationship with defendant. The fact that defendant was unable to sell nylon polymer to plaintiff because of its own contractual constraints with Dow does not turn plaintiff's decision to reduce its nylon salt requirements to zero into a breach of the contract or a breach of the duty of good faith or fair dealing.

We agree that ordinarily when subjective elements of good faith or bad faith are material, such determinations are usually left to the trier of fact. Liberty Surplus Ins. Corp. v. Nowell Amoroso, P.A., 189 N.J. 436, 447 (2007). However, even where subjective intent is involved, summary judgment is appropriate when the facts are so one-sided, no contrary conclusion could otherwise be reached. Id. at 450.

A leading case that addresses the notion of "good faith" in the context of requirements contract is the Seventh Circuit's decision in Empire Gas Corp. v. American Bakeries Co., 840 F.2d 1333 (7th Cir 1988), cited by the trial court. In that case, the defendant agreed to buy converters from the plaintiff that enabled gas-powered vehicles to operate on propane. Id. at 1334. According to the parties' agreement, the defendant agreed to buy approximately 3000 units, "more or less depending upon [the] requirements of Buyer." Id. at 1335. The defendant also agreed to purchase propane motor fuel from the plaintiff. Ibid. Within days of signing the agreement, which was supposed to last for four years, the defendant decided not to convert its fleet to propane, without giving any reason for the decision, and consequently never ordered any equipment or propane from the plaintiff. Ibid.

The Seventh Circuit first found that the contract constituted a requirements contract and was governed by § 2-306(1) of Illinois's UCC, id. at 1336, which mirrors Missouri's similar provision, Mo. Ann. Stat. § 400.2-306(1). The question before the court in Empire Gas was whether the statutory phrase "quantity unreasonably disproportionate to any stated estimate" applied to preclude a buyer from reducing his demand to zero. Id. at 1337. The court reasoned that a buyer would be acting in bad faith if, during the contract period, it bought the goods in question from someone else, or manufactured its own goods, or reduced its purchases because it wanted to hurt the seller. Ibid. On the other hand, the court concluded that a buyer would not be acting in bad faith if it had a business reason for deciding not to purchase "that was independent of the terms of the contract or any other aspect of its relationship" with the seller, such as a drop in the demand for its own products. Ibid. In the case before it, the defendant changed its mind, converting to propane for no disclosed reason. Ibid.

Ultimately, the Seventh Circuit, in applying prior Illinois decisional law, found that a requirements contract is a sharing of risk between seller and buyer.

The seller assumes the risk of a change in the buyer's business that makes continuation of the contract unduly costly, but the buyer assumes the risk of a less urgent change in his circumstances, perhaps illustrated by the facts of this case where so far as one can tell the buyer's change of mind reflected no more than a reassessment of the balance of advantages and disadvantages under the contract. . . .

It is a nice question how exigent the buyer's change of circumstances must be to allow him to scale down his requirements from either the estimated level or, in the absence of estimate, the "normal" level. Obviously it need not be so great as to give him a defense under the doctrines of impossibility, impracticability, or frustration, or under a force majeure clause. Yet, although more than whim is required, how much more is unclear. . . .

The essential ingredient of good faith in the case of the buyer's reducing his estimated requirements is that he not merely have had second thoughts about the terms of the contract and want to get out of it.

Whether the buyer has any greater obligation is unclear, but need not be decided here. [Id. at 1340-41 (citations omitted).]

There are no published Missouri state court decisions on this issue. However, in a case predating Empire Gas, the federal court found that Mo. Rev. Stat. § 400.2-306(1) allowed a buyer, under a requirements contract, to order reductions which are highly disproportionate to a stated estimate if such reductions are done in good faith. Angelica Uniform Group, Inc. v. Ponderosa Sys., Inc., 487 F. Supp. 1374, 1375 (E.D. Mo.), aff'd o.b., 636 F.2d 232 (8th Cir. 1980). Thus, it would appear that Missouri would align itself with the reasoning in Empire Gas that a buyer may reduce its demands under a requirements contract to zero as long as the reduction is done in good faith.

The contract between the parties here had existed for more than twenty years and it was only during the last several years of the parties' relationship that it became clear to plaintiff that its manufacturing costs could be reduced if it purchased nylon polymer rather than purchasing nylon salt and then having to polymerize it in-house. It was undisputed that plaintiff actually discontinued its polymer manufacturing operation and, in doing so, eliminated its need to purchase nylon salt. It was also undisputed that plaintiff attempted to purchase nylon polymer directly from defendant but defendant could not sell nylon polymer to plaintiff because of its contractual constraints with DOW.

Based upon these undisputed facts, we agree with the reasoning of the trial court that "the law does not require Ticona to shut is doors and go out of business, only that it acts in good faith in deciding to stop buying nylon salt[.]" Under the undisputed facts of the articulated business reasons for its decision to cease ordering nylon salt from defendant, no reasonable jury could conclude that plaintiff's actions were motivated by bad faith. As the court stated in Schawk, Inc. v. Donruss Trading Cards, Inc., 746 N.E.2d 18, 23 (Ill. App. Ct.), appeal denied, 754 N.E.2d 1292 (Ill. 2001), "[t]he duty of good faith, implicit in every requirements contract, is not synonymous with a duty to stay in business."

Additionally, we reject defendant's argument that a factual question exists as to whether plaintiff really closed down its plant in Bishop, Texas or merely shut down production of one particular product, and if the latter, then this case is distinguishable from that line of cases cited by plaintiff where the question of good faith was resolved at the summary judgment level. See Schwack, supra, 746 N.E.2d 18; see also Brewster of Lynchburg, Inc. v. Dial Corp., 33 F.3d 355 (4th Cir. 1994). We disagree.

Under a requirements contract, what is significant is the buyer's need for a particular product. Hence, whether an entire factory or business division is shut down, or whether a particular product is no longer manufactured, the end result is the same -- the buyer no longer has any need for the seller's product. All that matters is whether the decision was made in good faith.

Nor do we agree with defendant's additional argument that because it made a large capital investment in expanding its salt-producing facilities in reliance upon the 1993 amendment to the parties' contract, plaintiff could not go out of the nylon polymer-making business without giving it four years notice. This argument is not supported by the record.

"[E]xtraordinary expenditures and investments" made in expectation of a buyer's continued business or "appreciable reliance" might preclude a buyer from reducing its requirements to zero. Such situations, however, must be viewed as exceptions to the general rule that a buyer has no duty, above that of good faith, to stay in a particular business that is not yielding a profit. Schawk, Inc., supra, 746 N.E.2d at 24, 27. While the record here showed that defendant expanded its salt production facilities, nothing in defendant's own corporate records showed that this expansion was undertaken in reliance on the amendment to the contract; that is, all of the references in these records are to defendant's own need for salt in its own business. Hence, when the facts are viewed most favorably to defendant on this issue, no reasonable jury could conclude that defendant's capital investments were undertaken in reliance upon its continued contractual relationship with plaintiff.


We have considered the remaining issues raised by defendant related to its contention that plaintiff's decision to sell its assets but not assign the contract as part of the sale and its claim that its counterclaim for equitable recoupment should have separately survived plaintiff's summary judgment motion. We conclude that these contentions are without sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We add only the following comments.

The assignment provision was clearly designed to prevent either party from forcing an unwanted assignment upon the other party. The circumstances here are different because they involve the sale of plaintiff's business without an accompanying assignment as part of the purchase agreement. One author has noted that in the absence of a contractual provision to the contrary, a buyer is permitted to cease having requirements when it terminates the operations of a failing business, but not when it sells the enterprise as a going concern. Note, Requirements Contracts: Problems of Drafting and Construction, 78 Harv. L. Rev. 1212, 1226 (1965). This is because the subject matter of the contract is the requirements of the business, not the buyer's personal requirements. Ibid. By the time plaintiff sold its business, it had already ceased manufacturing nylon polymer and thereafter no longer had any requirement for salt. Hence, this was not a situation where, at the time plaintiff sold its business, it was still manufacturing nylon polymer and buying salt from defendant, and then the new owner of the business refused to purchase its nylon salt from defendant.

Finally, as the motion judge observed, under Missouri law, the doctrine of equitable recoupment has very limited application:

Where . . . parties begin to perform under a franchise, exclusive agency or distributorship agreement that says nothing about duration and does not specifically deal with termination, courts will construe it as terminable at the will of either party. Nevertheless, upon termination, the agent becomes entitled to recoupment or to compensation on a quantum meruit basis where the agent, induced by his appointment, has in good faith incurred expense and devoted time and labor in the matter of the agency without having had a sufficient opportunity to recoup such expenditures from the undertaking. [Ernst v. Ford Motor Co., 813 S.W.2d 910, 918-19 (Mo. Ct. App. 1991) (citation omitted).]

Thus, "[t]he recoupment doctrine imputes into a contract a duration equal to the length of time reasonably necessary for a dealer to recoup its investment, plus a reasonable notice period before termination," id. at 918, but only where the one of the above-defined relationships exist, not simply the contractual relationship that existed between plaintiff and defendant. Thus, consideration of defendant's expenditures in alleged reliance upon its contract with plaintiff was only relevant to the court's determination whether plaintiff should have been precluded from reducing its requirements to zero but did not furnish the basis for a separate cause of action against plaintiff.


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