Service Agreements Require Timely Payment, Compliance with Contractual Terms to Be Enforceable by Consumers – M&B Graphics v. Toshiba Business Solutions

A company that leased photocopier machines to a printing company prevailed on a motion for summary judgment in a breach of contract claim brought by the business leasing the copy machines. In M&B Graphics, Inc. v. Toshiba Business Solutions (USA), Inc., the U.S. District Court for the Eastern District of Michigan ruled that the defendant was justified in terminating service agreements for its machines due to the plaintiff’s noncompliance with the terms of the agreements.

M&B Graphics (M&B), a Michigan printing company, began leasing three photocopiers from Toshiba Business Solutions on August 10, 2009. The lease had a term of sixty-three months, with monthly payments of $2,520. The parties also executed service agreements for each of the three copiers. Toshiba would perform routine repairs and maintenance on the copiers, and M&B would pay a flat monthly fee and a per-copy fee. Toshiba had the right to terminate the service agreements if M&B failed to make timely payment of the monthly service fees or failed to use the copiers in strict accordance with Toshiba’s specifications. Either party could terminate the agreements by giving written notice thirty (30) days prior to the anniversary date.

According to Toshiba, the copiers experienced problems requiring multiple service calls through 2009 and 2010 because of the paper used by M&B. The company used custom-cut paper that did not meet Toshiba’s specifications, a fact Toshiba says it brought to M&B’s attention several times. Toshiba unilaterally terminated the service agreements on December 30, 2011, based on what it called M&B’s failure to comply with the agreements’ terms and conditions.

M&B sued Toshiba in January 2011 for breach of contract, requesting a preliminary injunction preventing Toshiba from refusing to service the copiers or increasing the per-copy fee. Toshiba removed the case to federal court, where a judge granted a preliminary injunction on March 31, 2011 requiring Toshiba to continue performing services. After discovery, Toshiba moved for partial summary judgment in July 2011, asking the court to recognize its right to terminate the agreements and to dissolve the injunction.

The court found that Toshiba had established its right to terminate the service agreements as a matter of law on at least two grounds: failure by M&B to make timely payments, and the right to terminate the agreement at will on its anniversary date. In a deposition in June 2011, M&B’s president admitted that M&B was behind on payments owed to Toshiba under the service agreements. Although M&B claimed payments would be forthcoming, by the time of the summary judgment motion, M&B still had not made the required payments. The court found that this entitled Toshiba to termination.

Toshiba sent notice to M&B on July 11, 2011 that it would exercise its right to terminate the service agreements at will on the anniversary date on August 10. The court ruled that the service agreements were distinct contracts separate from the copier leases, and that Toshiba’s written notice to M&B was sufficient. The court therefore ruled that Toshiba’s terminations of the service agreements was proper, and it dissolved the March 2011 injunction.

At Lubin Austermuehle, our business litigation attorneys represent business owners and professionals in breach of contract and other claims throughout the Chicagoland area including Cook, DuPage, Lake, Kane, McHenry and Will Counties and in the Mid-West region including Indiana, Wisconsin and Iowa.

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