Article

Good Faith; Contract to Provide LC

Note: Distributor and manufacturer entered into an Exclusive Distributorship Agreement under which distributor paid US$ 230,000 to manufacturer "in exchange for (a) the exclusive right to sell [manufacturer's] products in Japan, and (b) 23% of [manufacturer's] outstanding shares."

Distributor subsequently brought an action against manufacturer, alleging breach of contract and various business torts. Manufacturer counter-claimed, arguing that distributor breached the agreement by failing to use competent efforts to sell manufacturer's products in Japan, by "failing repeatedly to procure letters of credit", by "failing to open any letters of credit and ultimately failing to pay suppliers", by "failing...to place orders in a timely fashion", and by failing to conduct business in good faith.

In considering various motions, the court denied a motion for summary judgment on one of the counterclaims for breach of contract. The court denied the action, noting that there was a triable issue as to whether the repeatedly late opening of LCs by the manufacturer constituted a breach of the duty of good faith under the contract. "In sum, the evidence presented by [manufacturer] that [distributor] was repeatedly late in opening letters of credit raises an issue of triable fact as to whether [distributor] breached her duty of good faith ... ."

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