DISCERNING THE AGREEMENT Filling in Gaps in the Terms OR Missing Terms

Question 1

DISCERNING THE AGREEMENT

Filling in Gaps in the Terms OR Missing Terms

Courts may sometimes fill in terms of a contract by _______________.

Answer 1

Rule: **Courts may sometimes fill in terms of a contract by implying terms reasonable in the circumstances **

Question 2

DISCERNING THE AGREEMENT

Filling in Gaps in the Terms OR Missing Terms

Reasonable Certainty:

Answer 2

Reasonable Certainty:

Terms of contract must be reasonably certain such that the court can recognize when a breach occurred and can fashion a remedy out of the terms

• If not reasonably certain, contract is not enforceable
• But sometimes court can imply terms sufficient to make contract reasonably certain

Question 3

DISCERNING THE AGREEMENT

Filling in Gaps in the Terms OR Missing Terms

If the parties agree to later agree on something, _____________________

Answer 3

If the parties agree to later agree on something,

• the court will NOT fill in the terms of the later agreement
• contract is not enforceable for lack of certainty
• However, a contract may be reasonably certain even though one or both parties have the power to make selection of the terms in the course of performance

Question 4

Four Essential Elements which

an agreement must cover:

Answer 4

There are four essential elements which an agreement must cover (either expressly or impliedly) in order for it to be enforceable:

1. Parties to the contract
2. Subject matter of the contract
3. Time for performance
4. Price

Question 5

When can the courts supply missing terms?

Answer 5

1. Where parties intend to leave term to reasonable implication
2. Agreement to agree:
   
   • The parties may have left certain terms to be determined by a future mutual agreement.
   • In this situation, the U.C.C. and the Second Restatement may authorize the court to supply the missing term, if the parties fail to reach agreement.
3. Indefiniteness cured by performance

Question 7

Requirements/Output Contracts:

Answer 7

Requirements/Output Contracts:

Contract where the amount of the deal is not specified…based on requirements of buyer or output of seller

• EX: Agreement to supply “all radiator needs for a year” or “all fuel needs for a year”
• Possible issues of lack of certainty and lack of mutuality solved by good faith requirement

Question 8

Good Faith Requirement

for Requirements/Output Contracts

Answer 8

Parties to a contract have a duty to carry out the contract in good faith and fair dealing

In a requirement contract, this supplies certainty and mutuality

• Prior requirements give some measure of what buyer will need
• Good faith binds buyer to promise
  
  • If buyer requires goods in excess of his reasonable needs, he was not acting in good faith = the promise is not enforceable
• Good faith allows some measure of normal expansion for buyer
  
  • increase can’t be disproportionate to any estimate in contract or any previous contract
• Only bright-line = when requirements go from needs to stockpile…it is bad faith

Question 9

**UCC §2-306: **

Requirements Contracts

Answer 9

• Under U.C.C. §2-306, such output and requirements contracts are explicitly authorized, and are construed to involve “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 requirement may be tendered or demanded.”
• Imposes good faith obligation on all requirements contracts
• This simply codifies what we learned from the common law
• Such contracts (which call for the buyer to buy all of his needs from the seller, or provide that the buyer will buy the seller’s entire output) were formerly sometimes held to be too indefinite for enforcement, since they did not specify quantity.

Question 10

Illusory Promise

Answer 10

• Looks like a promise, but party is actually bound to nothing
• Good faith acts as restriction on a promise and binds the party

Question 11

Exclusive Dealing Contract

Answer 11

• When party makes a deal, it will only be with specific party
• UCC imposes restriction on seller to use best efforts to supply the goods and on the buyer to use best efforts to promote the sale of the goods