Prince’s Briefcase: New York Central Iron Works Co. v. United States Radiator (Trujillo Contracts)


Prof. Elizabeth Trujillo Contracts: Illusory Promises

Here is a case from my Contracts course which explains the concept of Illusory promises or in this scenario “Open or Requirements Contracts”. In this case, open contracts with no indefinite quantity of output are enforceable.

Procedural History
Defendant sought review from a judgment of the Appellate Division of the Supreme Court in the fourth judicial department (New York), which affirmed a judgment in favor of plaintiff entered upon the report of a referee.
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Facts
In the underlying action, plaintiff sought to recover damages for the breach of a written executory contract between the parties for the sale and delivery of goods. The contract was an open one as to the quantity of goods that defendant was to deliver. When plaintiff ordered significantly more goods than usual, defendant refused to provide the additional goods. Defendant construed the contract as calling for only the usual amount of goods and not materially exceeding the quantity delivered in any one year before under a similar contract. Defendant claimed that there was a mutual mistake in framing the contract, and defendant asked that the contract be reformed in this respect. The trial court found for the plaintiff, and defendant appealed.
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Issue
1) Can the contract be reformed to limit the quantity?
2) Is the requirements contract enforceable even though there is no specific quantity of output?

Holding
1) No
2) Yes

Rule
Both parties are bound to carry a contract in a reasonable way. The obligation of good faith and fair dealing towards each other is implied in every contract of this character.

Reasoning
–The contract was open; the amount of goods was intended to be indefinite. (UCC 2-306 Go to Notes)
–Room for re-negotiation

Notes
UCC §2-306 Output, Requirements (contracts) and Exclusive Dealings: (1) When there is no specified quantity by output of seller, the output must be done in good faith and reasonably. Don’t make contract illusory.
Defendant should have pleaded speculation by the plaintiff

Prince’s Takeaway
Requirements contracts allow a party to purchase from another, the quantity of a particular good as it requires, therefore the quantity term was intentionally left out since the purchaser cannot guess how much he would need.

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