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Contracts

Gap Fillers

Chapter 3 of Article 2 contains gap fillers. These gap fillers fufill two functions. They supply terms where the parties have left gaps in their agreement, such as time of delivery, ... They also police the bargain by imposing guideposts for fairness in situations which create difficulties.

Under traditional contract law, the parties needed to resolve all material issues in their agreement. And so, we have some older cases stating essentially that if the parties haven't agreed on all essential terms, then they don't really have an agreement, because there was no "meeting of the minds." If the parties couldn't themselves establish an entire agreement, covering all essential terms, why should they be allowed to come to the court and waste valuable judicial resources filling in the blanks? Article 2 of the Uniform Commercial Code represents a departure from the former requirement that the parties make an entire bargain. Section 2-311 (Options and cooperation respecting performance) says that:

  • (1) An agreement for sale which is otherwise sufficiently definite 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.

Chapter 3 fills in the blanks for parties in a number of ways.

Open Price: Section 2-305 (open price term) allows parties to create an enforceable contract even without agreeing to the price. If the price is left open, then the price will be a reasonable price:

  • (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.

But if the parties didn't intend to create an agreement, didn't intend to be bound, until they agree on price, then there is no contract. The UCC supplies terms only for parties who intended to have an agreement.

  • (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.

Single Lots: Suppose Target Stores orders 500 lamps from LampCo International. LampCo is delighted to receive the order, but can only produce 200 right away. LampCo ships 200 lamps in a first lot, together with its invoice for the full 500 lamps, the other to follow in two additional lots during the next month. Does Target have to accept? Section 2-307 (Delivery in single lot or several lots ) answers this question. It says:

  • Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot.

In short, where the contract is silent, ordinarily shipment of the entire order is called for, but prior history or industry custom may allow shipment in lots.

Delivery Point Not Stated: When the agreement leaves open the point of delivery, section 2-308 provides that the place of delivery is the seller's place of business or if there is none , the seller's residence. In other words, the price of sale does not ordinarily include the cost of delivery. That is the rule which applies to generic goods, not specially identified. But when the buyer purchase specifically identified goods (a particular car, a particular lot of merchandise located in a warehouse, "which to the knowledge of the parties at the time of contracting are in some other place", then that is the place of delivery.

Time of Delivery Not Stated: Section 2-309 tells us that if the contract does not provide for a specific time of delivery, then delivery will be a reasonable time. Indeed, the code states that any other action under the contract will occur at a reasonable time unless the time is stated in the contract or elsewhere in the code.

Successive Performances. If the parties sign a contract which calls for periodic or successive performances, but the contract does not state how long the contract will continue, then section 2-309 tells us that the contract lasts for "a reasonable time", but "unless otherwise agreed may be terminated at any time by either party."

Payment Time Not Stated. Section 2-310 (Open time for payment or running of credit; authority to ship under reservation) tells us that payment is due on delivery, unless otherwise agreed:

  • (a) payment is due at the time and place at which the buyer is to receive the goods even though the place of shipment is the place of delivery....

Also, unless otherwise agreed, "where the seller is required or authorized to ship the goods on credit the credit period runs from the time of shipment..."

Output, requirements and exclusive dealings. An output contract obligates the buyer to purchase all of the seller's output. A requirements contract obligates the seller to produce all of the supplies required by the buyer. Either of these two contracts of St. Cloud, Minnesota. Law for Laymen/Contracts. Reach Home by clicking the button below. are subject to potential abuse. A buyer might, for example, seek to inflate his requirements to take advantage of favorable price terms. For this reason, section 2-306 imposes good faith limitations on these contracts:

  • (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.
  • (2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.