A manufacturer and a distributor entered into a distribution agreement with an automatic extension for 5 years. Ten months after its execution, the manufacturer sent a notice of termination of the agreement, mainly in view of the manufacturer's meager sales volume.
The Court held that the agreement was unduly terminated. Long-term contracts, especially in the field of agency and distribution, do not bind their parties permanently even if no date has been set for the termination of the contract and termination may be done according to its specific circumstances. However, when the parties stipulate a term for the contract and set out explicit provisions regarding its termination, the provisions of the agreement must be reviewed and whether the conditions justifying its termination have been met. Here, the distribution agreement explicitly stated that the manufacturer has the right to terminate the agreement subject to 18 months' prior notice provided that the term of the permanent agreement has expired. The term of the agreement was defined as a period of 10 years. Further, the distributor sold a considerable quantity of products, when the agreement did not include a stipulation as to the minimum quantity of orders. Thus, the manufacturer did not have the right to terminate the agreement.