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Presenting a live 90-minute webinar with interactive Q&A
Negotiating Long-Term Requirements
Contracts with Suppliers Assigning Contractual Risks, Navigating Differing Court Interpretations of UCC Section 2-306
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
WEDNESDAY, APRIL 13, 2016
Huu Nguyen, Partner, Squire Patton Boggs, New York
Sarah K. Rathke, Partner, Squire Patton Boggs, Cleveland
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Long-Term Requirements Contracts with Suppliers Drafting, Negotiation and Enforcement Challenges
Sarah Rathke Esq. & Huu Nguyen, Esq.
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About the Speakers
Huu Nguyen, Partner Squire Patton Boggs, New York, [email protected]
Huu is a deal lawyer, focusing his practice on commercial and corporate transactions in the technology and media space. He counsels and assists clients with complex commercial arrangements, strategic relationships, financial regulatory matters, privacy and security matters, licensing, outsourcing, cyber law, intellectual property rights and rights of publicity and personality. He also helps his clients with accelerator and foundry formations and associated fund formations, mergers and acquisitions, corporate governance, corporate formation and other corporate matters.
Sarah K. Rathke, Partner Squire Patton Boggs, Cleveland, [email protected]
Sarah is a trial lawyer whose practice focuses on supply chain disputes. She also advises clients on supply chain compliance issues, corporate social responsibility issues in the supply chain, and working with NGOs on supply chain issues. Sarah is co-author of the 2016 treatise, Legal Blacksmith: How to Avoid and Defend Supply Chain Disputes, and is a frequent speaker on supply chain topics.
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Resources
http://www.globalsupplychainlawblog.com/
Sarah’s Book:
Legal Blacksmith: How to Avoid and
Defend Supply Chain Disputes
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Overview
This talk will address issues from the Buyer’s perspective and its
requirements, and not from the Supplier’s perspective
Address common scenarios/challenges
Allocation of risk is ultimately based on leverage
Take into account number of suppliers, integration points, exclusivity or not
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Overview
Outline of Talk:
Overview
UCC §2-306
Minimum quantities
Expected and estimated purchase levels
Price escalations
Reduction and excused performance
Scheduled delays
Changes to lead time
Amendments and variations
Avoiding and/or addressing contractual and enforcement pitfalls
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Overview
We will focus on supply, delivery time, and pricing controls
We won’t focus on these things, but they all play a role in long term supply
agreements in general:
Cooperation, dispute resolution, audit, project management
Indemnification, limitations of liability, warranties, insurance
Flow downs to sub-suppliers, contractors
Partnership vs. Contractors
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Overview
Risk and commitment sit on a spectrum
From Buyer’s Perspective
No commitment to
supply/purchase certain
amounts (PO by PO basis)
AND seller has flexibility in
pricing and delivery
Promise to purchase all
products supplied by seller
AND seller has flexibility in
pricing and delivery
No commitment to
supply/purchase certain
amounts (PO by PO basis)
AND no flexibility in pricing
or delivery
Promise to supply all
products needed by buyer
AND buyer has flexibility in
pricing and delivery
Commitment
Risk
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Overview
What are the benefits with long-term requirements contracts?
Certainty, certainty, certainty
Locked in supply and price
Locked in Buyer/Seller
Long-term relationship permits more flexibility in negotiating bespoke terms
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Overview
What are the legal risks with long-term requirements contracts?
More risk of breaches by either party because buyer can’t produce goods or
seller no longer has static needs – or when the economics of the deal
change
More risk of upstream breaches by sub-suppliers
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Overview
How can businesses best mitigate risk when drafting and negotiating long-
term requirements contracts?
That’s what this talk is about!
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UCC § 2-306
§ 2-306. Output, Requirements and Exclusive Dealings.
(1) 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.
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UCC § 2-306
Commentary:
1. Subsection (1) of this section, in regard to output and requirements, applies
to this specific problem the general approach of this Act 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. It applies to such contracts of nonproducing establishments
such as dealers or distributors as well as to manufacturing concerns.
2. Under this Article, a contract for output or requirements is not too
indefinite since it is held to mean the actual good faith output or
requirements of the particular party. Nor does such a contract lack mutuality
of obligation since, under this section, the party who will determine quantity
is required to operate his plant 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. …
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UCC § 2-306
Buyers in requirements contracts must use good faith in defining what
their requirements are. Attempts to stockpile products beyond a buyer’s
actual requirements – whether in anticipation of a contract ending or a price
increase – constitute bad faith. Enzo Biochem, Inc. v. Affymetrix, Inc., 2013
U.S. Dist. LEXIS 18599 (S.D.N.Y. Dec. 6, 2013).
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UCC § 2-306
Law is not settled on whether a requirements contract would be found
enforceable if it were a non-exclusive arrangement.
Majority view is that valid requirements contract requires that the buyer and
seller agree implicitly or explicitly to an exclusive commercial relationship.
But, a minority view does not require exclusivity: General Motors Corp. v.
Paramount Metal Products Co., 90 F. Supp. 2d 861, 873-74 (E.D. Mich.
2000) (distinguishing section 2-306(1) from 2-306(2) and asserting that all
requirements contracts may not be exclusive in nature); Hoover's Hatchery,
Inc. v. Utgaard, 447 N.W.2d 684, 688 (Iowa App. 1989) (“Nothing in the
statutory language of section [2-306], or in the official comments to that
section, suggests that exclusivity is a prerequisite to the establishment of a
requirements contract").
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UCC 2 vs CISG
For the international sale of goods, the Convention on the International Sale
of Goods (CISG) may apply unless disclaimed
Our discussion will focus on UCC 2 and US contract law and not CISG
UCC 2 covers the sales of goods
All 50 states have enacted some version of UCC 2
Our talk will focus mainly on UCC § 2-306, but other sections also apply and
we will discuss those briefly
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Minimum quantities
A minimum quantity requirement puts a floor on what Buyer is willing to order
and Supplier is willing to supply
Typical for sophisticated parties – maximum quantities are too
Minimum quantities can be expressed as actual quantities, percentage of
Supplier’s production, etc.
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Minimum quantities
Example Requirements Clause with Minimum Quantities:
Purchase and Sale. Subject to and in accordance with the terms and
conditions of this Agreement, during the Term, Buyer shall purchase from
Supplier, and Supplier shall manufacture and sell to Buyer, 100 percent of
Buyer’s requirements for the Goods (the “Requirements”). At a minimum,
the Requirements shall require supplier to manufacture and Buyer to
purchase 50 Goods per month.
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Expected and estimated purchase levels
Forecasting in business is common; common to communicate forecasts to
suppliers
Forecasts are communicated in a variety of ways
Can create binding contractual obligations; specify clearly whether forecasts
are intended to be binding
Suppliers may expend costs based on forecasts and estimates
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Expected and estimated purchase levels
6th Circuit: Court held buyer’s forecast was binding because goods were
specially manufactured for the buyers, and because the buyer knew that the
product price was calculated based on anticipated order quantity. Detroit Radiant
Products Company v. BSH Home Appliances Corporation, 473 F.3d 623, 61
U.C.C. Rep. Serv. 2d (Callaghan) 701 (6th Cir. 2007).
In Georgia, court limited buyer’s damages to the amount of purchases buyer
forecasted to the supplier, reasoning that because the buyer knew that the
supplier relied on the forecasts, the buyer’s forecasts were binding, and
additional damages were not legally supported. Scovill Fasteners, Inc. v.
Northern Metals, Inc., 303 Ga. App. 246, 692 S.E.2d 840, 71 U.C.C. Rep. Serv.
2d (Callaghan) 263 (Ga. App. 2010).
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Expected and estimated purchase levels
The parties may also create limits on the quantities to be sold in a
requirements contract by stating an estimate. If they do, they will not be
obligated to supply an unreasonably disproportionate quantity above
that estimate per UCC § 2-306(1), although the buyer still may reduce its
purchases to zero, constrained only by good faith, even with a stated
estimate. Canusa Corp. v. A & R Lobosco, Inc., 986 F. Supp. 723, 728-29
(E.D.N.Y. 1997).
It is unwise to define the phrase "unreasonably disproportionate" in UCC §
2-306(1) in terms of rigid quantities. Instead, when construing the phrase, the
following factors should be considered: (1) the amount by which the
requirements exceeded the contract estimate; (2) whether the seller had any
reasonable basis on which to forecast or anticipate the requested increase;
(3) the amount, if any, by which the market price of the goods exceeded the
contract price; (4) whether such an increase in market price was itself
fortuitous; and (5) the reason for the increase in requirements. Orange &
Rockland Utilities, Inc. v. Amerada Hess Corp., 59 A.D.2d 110, 397 N.Y.S.2d
814, 1977 N.Y. App. Div. LEXIS 12466 (N.Y. App. Div. 2d Dep't 1977).
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Expected and estimated purchase levels
Example definitions
Quantity. Supplier will provide Buyer with 100 percent of Buyer’s requirements for
the Goods, whereas:
(a) such quantity includes Buyer’s production, replacement, and Inventory Bank
requirements of the Goods;
(b) throughout the Term, Supplier shall maintain the capacity and availability to
supply Buyer’s peak daily, weekly, and annual requirements of Goods (as
communicated by Buyer to Supplier in Purchase Orders or Releases);
(c) throughout the Term, Supplier shall, at its sole expense and risk, maintain an
Inventory Bank;
(d) from time-to-time, Buyer may, but shall not be required to, provide
Supplier with Forecasts. Forecasts are for informational purposes only and do
not create any binding obligations on behalf of either Party;
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Price escalation
Buyer would want right to lower prices
Supplier would want right to raise prices
But price escalation upwards is issue for Buyer
Buyer usually asks for a price lock
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Price escalation
§ 2-305. Open Price Term.
(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if
(a) nothing is said as to price; or
(b) the price is left to be agreed by the parties and they fail to agree; or
(c) the price is to be fixed in terms of some agreed market or other standard as set or recorded by a third person or agency and it is not so set or recorded.
(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.
(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.
(4) Where, however, the parties intend not to be bound unless the price be fixed or agreed and it is not fixed or agreed there is no contract. In such a case the buyer must return any goods already received or if unable so to do must pay their reasonable value at the time of delivery and the seller must return any portion of the price paid on account.
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Price escalation
In breach-of-contract action by buyer for defendant seller's failure to ship full
quantity of rayon rejects ordered by buyer, court held (1) that parties'
failure to fix price of rejects was covered by UCC § 2-305(1) and Official
Comment 1, under which price was "reasonable price" that was equivalent to
market price; (2) that since buyer had ordered up to 3,000 tons of rejects
based on its customer's estimated requirements for forthcoming year, such
amount--under requirements quantity-term, "gap-filler" provisions of UCC §
2-306(1)--established basis for measuring buyer's damages for lost profits;
and (3) that shipments to other buyers, which included prices, could be
used under UCC § 2-305(1) to establish reasonable market price of
goods that should have been shipped to buyer. Pulprint, Inc. v.
Louisiana-Pacific Corp., 124 Misc. 2d 728, 477 N.Y.S.2d 540, 1984 N.Y.
Misc. LEXIS 3322 (N.Y. Sup. Ct. 1984).
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Price escalation
Example of Pricing Control Provisions:
Price. The prices for the Goods shall be the prices set forth on Schedule 1
attached hereto (“Prices”). All Prices include, and Seller is solely responsible
for, all costs and expenses relating to packing, crating, boxing, transporting,
loading and unloading, customs, Taxes, tariffs and duties, insurance and any
other similar financial contributions or obligations relating to the production,
manufacture, sale and delivery of the Goods. All Prices are firm and are not
subject to increase for any reason, including changes in market conditions,
increases in raw material, component, labor or overhead costs or because of
labor disruptions[, changes in program timing or length,] or fluctuations in
production volumes.
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Price escalation
Most Favored Customer (MFC) protection
E.g., match to best price the Seller offers to other buyers
Sellers often qualify as best price for similar buyers
How to prove best price for similar buyers?
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Price escalation
Example of MFC:
Most Favored Customer. Seller represents and warrants that [each of] the
Prices set forth on Schedule 1 is at least as low as the price charged by
Seller to other buyers for the same Goods or similar goods. If, at any time
during the Term, Seller charges any other Buyer a lower price for the same
Goods or similar goods, Seller shall apply that price to all same or similar
Goods under this Agreement. If Seller fails to apply the lower price, Buyer may,
at its option, in addition to all of its other rights under this Agreement or at Law,
terminate this Agreement without liability. The Parties shall reflect any
adjustment to pricing under this Section in an amendment to Schedule 1;
provided, however, that, notwithstanding anything to the contrary contained in
this Agreement, the execution and delivery of any such amendment by each of
the Parties will not be a condition to the effectiveness of such price adjustment.
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Price escalation
If Seller has right to escalate price, Buyer should put a collar or limit in
Only for when conditions occurs, such as increase in costs not otherwise accounted
for by the parties, or change in requirements from customers
Collar around increase
Tie to Force Majeure and right for Customer to terminate
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Schedule delays
Do parties have interlocking obligations?
Does Buyer need to submit orders by certain dates with certain details?
Does Buyer need to provide details for manufacture of goods?
What options does Buyer have if Supplier delays?
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Schedule delays
§ 2-311. Options and Cooperation Respecting Performance.
(1) An agreement for sale which is otherwise sufficiently definite (subsection
(3) of Section 2-204) to be a contract is not made invalid by the fact that it
leaves particulars of performance to be specified by one of the parties. Any
such specification must be made in good faith and within limits set by
commercial reasonableness.
(3)Where such specification would materially affect the other party's
performance but is not seasonably made or where one party's cooperation
is necessary to the agreed performance of the other but is not
seasonably forthcoming, the other party in addition to all other remedies
(a) is excused for any resulting delay in his own performance; and
(b) may also either proceed to perform in any reasonable manner or after
the time for a material part of his own performance treat the failure to
specify or to cooperate as a breach by failure to deliver or accept the
goods.
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Schedule delays
From UCC Comments on § 2-311:
Subsection (3) applies when the exercise of an option or cooperation by one
party is necessary to or materially affects the other party's performance, but it
is not seasonably forthcoming; the subsection relieves the other party from
the necessity for performance or excuses his delay in performance as the
case may be. The contract-keeping party may at his option under this
subsection proceed to perform in any commercially reasonable manner
rather than wait.
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Schedule delays
§ 2-612. “Installment Contract”; Breach
(1) An “installment contract” is one which requires or authorizes the delivery
of goods in separate lots to be repeatedly accepted, even though the
contract contains a clause “each delivery is a separate contract” or its
equivalent.
(2) The buyer may reject any installment which is non-conforming if the non-
conformity substantially impairs the volume of that installment and cannot be
cured …; but if the non-conformity does not fall within subsection (3)
and the seller gives adequate assurance of its cure the buyer must
accept that installment.
(3) Whenever non-conformity or default with respect to one or more
installments substantially impairs the value of the whole contract there is a
breach of the whole. But the aggrieved party reinstates the contract if he
accepts a non-conforming installment without seasonably notifying of
cancellation or if he brings an action with respect only to past installments or
demands performance as to future installments.
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Schedule delays
Examples of Delivery Clause with Time of the Essence:
Shipment and Delivery Requirements. Time, quantity and delivery to the
Delivery Location are of the essence under this Agreement. Seller shall
procure materials for, fabricate, assemble, pack, mark and ship Goods
strictly in the quantities, by the methods, to the Delivery Locations and by the
Delivery Dates, specified in this Agreement or in an applicable Purchase
Order or Release. Delivery times will be measured to the time that Goods are
actually received at the Delivery Location.
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Schedule delays
Example of Delay Protections Clause:
Duty to Advise. Supplier shall promptly provide written Notice to Buyer of any
of the following events or occurrences, or any facts or circumstances
reasonably likely to give rise to any of the following events or occurrences: (a)
any failure by Supplier to perform any of its obligations under this Agreement;
(b) any delay in delivery of Goods; (c) any defects or quality problems
relating to Goods; (d) any change in Control of Supplier; (e) any deficiency in
Buyer specifications, samples, prototypes, or test results relating to this
Agreement; or (f) any failure by Supplier, or its subcontractors or common
carriers, to comply with Law.
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Changes to lead time
A lead time is the latency between the initiation and execution of a process.
Lead time between the placement of an order and delivery
If time is of the essence (as stated in agreement or otherwise) and there is
no slack in the lead time for Seller, costumer can claim breach
Failure in lead time can cause cascading failure at critical integration points
in the supply chain
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Changes to lead time
Seller obligation to account for interruption
Seller obligation to give notice of potential delay
Limit excuse for Sellers under a Force Majeure clause
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Changes to lead time
§ 2-309. Absence of Specific Time Provisions; Notice of Termination.
(1) The time for shipment or delivery or any other action under a contract if
not provided in this Article or agreed upon shall be a reasonable time.
(2) Where the contract provides for successive performances but is
indefinite in duration it is valid for a reasonable time but unless otherwise
agreed may be terminated at any time by either party.
(3) Termination of a contract by one party except on the happening of an
agreed event requires that reasonable notification be received by the other
party and an agreement dispensing with notification is invalid if its operation
would be unconscionable.
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Changes to lead time
Example of Delay Protections Clauses:
Protection Against Supply Interruptions. Seller shall, at Seller’s sole cost and
expense, take such actions as are necessary or appropriate to ensure the
uninterrupted supply of Goods to Buyer for not less than [NUMBER] days
during any foreseeable or anticipated event or circumstance that could interrupt
or delay Seller’s performance under this Agreement, including any labor
disruption, whether or not resulting from the expiration of Seller’s labor
contracts (and whether or not such occurrence constitutes a Force
Majeure Event hereunder). Seller shall notify Buyer at least [NUMBER] days
before the termination or expiration of any collective bargaining or other labor
agreement that relates to Seller’s Personnel involved in the production or
delivery of the Goods.
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Amendments and variations
Mandatory Change (e.g., by notice)
Change due to change in law, emergencies, recalls
Changes due to change in design; firming up inadequate specs; downstream
recalls,
Optional Changes (e.g., by amendments)
Process to negotiate in good faith changes or variations to Master Supply
Agreement
Exception to exclusivity if Seller can't supply or Buyer can’t buy
Buyer termination right if agreement cannot be met
Cost issues:
Who should bear costs of changes?
Party that asks for the changes or party that causes the need for the change?
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Amendments and variations
Example of Change Control Procedures:
Certain Changes. Seller shall promptly make any changes Buyer directs in writing with
respect to the Goods, which may include changes in the design, drawings,
specifications, processing, inspection, testing, quality control, methods of packing and
shipping or the date or place of delivery. Any changes pursuant to this Section will not
affect the Price or time for delivery of Goods unless (i) within [NUMBER] days after Buyer’s
notice to Seller of the change, Buyer receives from Seller written Notice of a claim for
adjustment with all sufficient information and documentation regarding Seller’s costs and
production timing resulting from such changes to allow Buyer to perform an audit and verify
such claim, and (ii) after auditing and verifying such claim, the results of such audit indicate
that, in order to implement such Buyer-requested changes, Seller’s actual out-of-pocket costs
increased by a material amount or that implementing such changes reasonably and
appropriately caused a delay in the Delivery Date of any affected Goods. Seller may increase
the Prices hereunder in a per-unit amount solely to the extent necessary to compensate
Seller for such commercially reasonable cost increases (but not to allow for any
additional margin). If Buyer’s audit and verification results indicate that Seller’s costs
have or should have actually decreased, the Prices hereunder shall be deemed
decreased on a per-unit basis to reflect the amount of any such cost savings. Nothing in
this Section, including any disagreement with Buyer as to any adjustment in price or time for
performance, will excuse Seller from proceeding with this Agreement as changed.
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Reduction and excused performance
If no minimum quantity specified, Buyer can just simply stop submitting
purchase orders or Seller can simply stop accepting purchase orders
Even if minimum quantity specified, Force Majeure Events may give rise to
reduction
Agreement should account for what happens if there is a reduction or
termination
Buyer will want certainty when there is a reduction in demand for Goods
(either through Seller’s request or Buyer’s request)
Buyer will want a smooth transition when reducing, suspending or
terminating a relationship
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Reduction and Excused Performance
Good faith, rather than estimate stated in contract, applied in determining
whether seller breached contract by reducing output; output agreement is not
transformed into fixed quantity contract by insertion of estimate. Canusa
Corp. v A & R Lobosco, 986 F. Supp. 723, 1997 U.S. Dist. LEXIS 19402
(E.D.N.Y. 1997).
Buyer was not in breach of a requirements contract, assuming one existed,
because it ceased ordering from a seller in good faith when the buyer's own
customer ended its ordering; a good-faith termination by the buyer in a
requirements contract will excuse further performance. Goaltex Corp. v
Association for the Blind & Visually Impaired, 979 N.Y.S.2d 481, 2014 NY
Slip Op 24007, 2014 N.Y. Misc. LEXIS 22 (N.Y. Sup. Ct. 2014).
47 squirepattonboggs.com
Reduction and excused performance
§ 2-615. Excuse by Failure of Presupposed Conditions.
Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:
(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.
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Reduction and excused performance
§ 2-616. Procedure on Notice Claiming Excuse.
(1) Where the buyer receives notification of a material or indefinite delay or
an allocation justified under the preceding section he may by written
notification to the seller as to any delivery concerned, and where the
prospective deficiency substantially impairs the value of the whole contract
under the provisions of this Article relating to breach of installment contracts
(Section 2-612), then also as to the whole,
(a) terminate and thereby discharge any unexecuted portion of the contract;
or
(b) modify the contract by agreeing to take his available quota in substitution.
(2) If after receipt of such notification from the seller the buyer fails so to
modify the contract within a reasonable time not exceeding thirty days the
contract lapses with respect to any deliveries affected.
(3) The provisions of this section may not be negated by agreement except in
so far as the seller has assumed a greater obligation under the preceding
section
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Reduction and Excused Performance
In action by buyer for breach by seller of contract for sale of 11,000 pairs of
combat boots, where (1) buyer had contract to resell boots to Government of
Ghana (2) seller agreed to manufacture boots in Korea and deliver them to
Ghana, and (3) en route from Korea to Ghana via United States, boots were
destroyed in train derailment in Nebraska …
Court held Seller was not excused from performance under UCC § 2-615(a),
in that (a) it failed to prove that contingency (train derailment) that made
performance commercially impracticable was not foreseeable at time
contract was made, and (b) parties' contract did not contain specific,
exculpatory language excusing nonperformance in event of train derailment.
Bende & Sons, Inc. v. Crown Recreation, Inc., Kiffe Products Div. (1982, ED
NY) 548 F Supp 1018, 34 UCCRS 1587, affd without op (1983, CA2 NY) 722
F2d 727 (apparently applying UCC as rule of federal common law).
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Reduction and excused performance
Example of Force Majeure Clause:
Force Majeure. Any delay or failure of either Party to perform its obligations
under this Agreement will be excused to the extent that the delay or failure was
caused directly by an event beyond such Party’s control, without such Party’s
fault or negligence and that by its nature could not have been foreseen by such
Party or, if it could have been foreseen, was unavoidable (which events may
include natural disasters, embargoes, explosions, riots, wars or acts of
terrorism) (each, a “Force Majeure Event”). Seller’s financial inability to
perform, changes in cost or availability of materials, components or services,
market conditions or Seller actions or contract disputes will not excuse
performance by Seller under this Section. …
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Reduction and excused performance
Example of Force Majeure Clause Continued:
… During any Force Majeure Event, Buyer may, at its option (a) purchase
goods similar to the Goods from other sources without liability to Seller (and all
such goods will be deemed to be Goods purchased under this Agreement for
purposes of satisfying any quantity requirements applicable to Buyer
hereunder), and require Seller to reimburse Buyer for any additional costs to
Buyer of obtaining the substitute goods compared to the Prices for such Goods
under this Agreement, (b) require Seller to deliver to Buyer all finished Goods,
work in process or parts and materials produced or acquired for work under this
Agreement, or (c) require Seller to provide Goods from other sources in
quantities and at a time requested by Buyer and at the Prices for the Goods
hereunder. …. If the delay lasts more than such [NUMBER]-day period, or if
Seller does not provide such adequate assurances, Buyer may immediately
terminate this Agreement without any liability to Seller.
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Reduction and excused performance
Example of Force Majeure Clause Continued:
… Seller shall give Buyer prompt written notice of any event or circumstance
that is reasonably likely to result in a Force Majeure Event, and the anticipated
duration of such Force Majeure Event. …The rights granted to Seller with
respect to excused delays under this Section are intended to limit Seller’s
rights under theories of force majeure, commercial impracticability,
impracticability or impossibility of performance, or failure of presupposed
conditions or otherwise, including any rights arising under Section 2-615
or 2-616 of the UCC.
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Reduction and excused performance
Example of Termination:
Buyer’s Right to Terminate for Cause. Buyer may terminate this Agreement, by
providing written Notice to Seller:
...
if Seller takes any action, or fails to take any action, required under this
Agreement or any other agreement between Buyer and Seller, or as
reasonably requested by Buyer, the result of which is any imminent interruption
or delay, or the threat of an imminent interruption or delay, in any production at
any of Buyer’s or its customer’s manufacturing facilities;
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Avoiding and/or addressing contractual and
enforcement pitfalls
Communicate expectations
Internal flow-through of information across departments/functions
Avoid inadvertent contract waivers
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Avoiding and/or addressing contractual and
enforcement pitfalls
§ 2-209. Modification, Rescission and Waiver.
(1) An agreement modifying a contract within this Article needs no consideration to be
binding.
(2) A signed agreement which excludes modification or rescission except by a signed writing
cannot be otherwise modified or rescinded, but except as between merchants such a
requirement on a form supplied by the merchant must be separately signed by the other
party.
(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be
satisfied if the contract as modified is within its provisions.
(4)Although an attempt at modification or rescission does not satisfy the requirements of
subsection (2) or (3) it can operate as a waiver.
(5) A party who has made a waiver affecting an executory portion of the contract may retract
the waiver by reasonable notification received by the other party that strict performance will
be required of any term waived, unless the retraction would be unjust in view of a material
change of position in reliance on the waiver.
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Avoiding and/or addressing contractual and
enforcement pitfalls
Example No Oral Modification or Waiver Clause:
This Agreement may not be modified, waived, or rescinded other
than by a writing executed by both parties. No verbal
communication, representation, conduct, course of performance,
course of dealing, usage of trade, or purported waiver or estoppel
shall modify or alter the terms of this Agreement.