another example of an implied promise to use best efforts not with exclusive dealing contracts.
Housing merchant warranty- page 499
SUPPLEMENTING THE AGREEMENT
Implied Terms-
a) implied in fact- implied by the parties themselves.
b) Implied in law- made a part of that agreement by operation of the rules of law rather than the parties themselves. Imposed by the court.
Implied obligations in relation to illusory promises-
– in judging if a promise is illusory, important to consider not only what a person explicitly promises but also to analyze the implicit obligations reasonably contained within whatever obligation was expressly undertaken.
Exclusive Dealing Contracts: Duty to Exercise Best Efforts-
Exclusive Dealing Contract-
– one in which one party enjoys the exclusive right to sell goods within a particular market.
2-306(2)- Best Efforts with Exclusive Contracts- specifies that in the absence of an agreement between the parties to the contrary, an exclusive dealing contract imposes an obligation on-
1) the seller- to use its best efforts to supply the goods, and
2) on the buyer to use its best efforts to promote their sale.
In determining whether the parties have used their best efforts consider- 2-306(2) (beyond an obligation to act in good faith.)-
a) industry custom or practice
b) past conduct between the parties
c) specific efforts that may be outlined between the parties.
Example-
Wood v. Lady Duff Gordon-
Lucy promised wood that he would have the exclusive rights to sell clothing that she had designed or endorsed. Wood in return promised to keep track of his sales and to apy Lucy half of his profits.
Issue: wood made no express promise to sell a particular quantity of the items bearing her endorsement. It appeared that Wood’s discretion was completely unrestrained and that he had not made any promise in exchange for hers.
Holding: Cordozo said that the contract included an implied promise that Wood would use “reasonable efforts” to market Lucy’s designs. This was due to the fact that absent this implied promise, there would not have been a rational basis for the agreement. Lucy stood
her party reasonable time to seek a substitute arrangement.
– However- the contract can expressly deny the requirement of notification.
– Determining what time is reasonable may also be influenced by the terms contained in the parties present or prior agreement and by industry standards.
Implied Obligation of Good Faith-
UCC §1-203-
Requires that every contract or duty imposes an obligation of good faith.
§1-201(19)- good faith was defined as – honesty in fact.
§2-103(1)(b)- merchant’s good faith-
1) honesty in fact
2) the observance of reasonable commercial standards of fair dealing.
Restatement §205-
Requires a duty of good faith and fair dealing to every contract.
Cmt.b- bad faith includes evasion of the spirit of the bargain.
– good faith represents a limit on discretionary rights expressly provided in a contract.
