1. Which of the following will the court probably decide?

Shortly after making the contract, and before the pastry company had tendered any buns, the baked goods retailer decided that the contract had become undesirable because of a sudden, sharp decline in its customers' demand for baked buns. It renounced the agreement and the pastry company sues for breach of contract.

Under a written agreement, a pastry company promised to sell its entire output of baked buns at a specified unit price to a baked goods retailer for one year. The baked goods retailer promised not to sell any other supplier's baked buns.

The baked goods retailer wins, because mutuality of obligation was lacking in that the baked goods retailer made no express promise to buy any of the pastry company's baked buns
The baked goods retailer wins, because the agreement was void for indefiniteness of quantity and total price for the year involved
The pastry company wins, because the baked goods retailer's promise to sell at retail the pastry company's baked buns exclusively, if it sold any such buns at all, implied a promise to use its best efforts to sell the pastry company's one-year output of baked buns
The pastry company wins, because under applicable law both parties to a sale-of-goods contract impliedly assume the risk of price and demand fluctuations

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Output contracts are a special type of contract that concern the sale and purchase of goods. Specifically, in an output contract, the buyer agrees to purchase all of a supplier's output. Generally speaking, the buyer will buy all of an item that the seller can produce. Requirement contracts are agreements for the seller to sell as much of an item as the buyer requires. The Uniform Commercial Code (UCC) explicitly validates requirements and output contracts in § 2-306(2).

Requirements and output contracts do not lack mutuality of obligation because the seller will determine quantity as required to operate his plant and conduct his business in good faith and according to the commercial standard of fair dealing in the trade so that his output or requirements will approximate a reasonably foreseeable figure.

C is correct. Under the UCC, a contract for exclusive dealing in a good imposes on the part of the seller an obligation to use best efforts to supply the good and an obligation on the part of the buyer to use its best efforts to promote the good's sale. Therefore, the baked goods retailer was under an implied obligation to use its best efforts to promote the sale of the pastry company's buns for the duration of the contract.

A is incorrect. Courts often look to the history of dealings between the parties and to the standards within the industry to determine if the buyer is acting in bad faith for breach of contract actions on requirements contracts. Here, the contract implied an obligation on the part of the baked goods retailer to use its best efforts to promote the sale of the buns.

B is incorrect. A proposed agreement that has terms too vague to form a contract is said to be void for indefiniteness. However, not every term needs to be ironclad for a contract to remain enforceable. The UCC states that even though one or more terms are left open, a contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. See UCC § 2-204(3). Output contracts are explicitly allowed by the UCC.

D is incorrect. Buyers and sellers share risk in a requirements contract. The seller assumes the risk of a buyer's business changing in such a way that the cost of fulfilling the requirements becomes unduly costly. The buyer runs the risk of changes in its financial situation. Unexpected price fluctuations may drive these risks.

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1. Which of the following will the court probably decide?

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