Feld v. Henry S. Levy & Sons, Inc.
373 N.Y.S.2d 102, 335 N.E.2d 320 (N.Y. 1975)
- Levy and Feld made a renewable one-year contract for the defendant to sell all his bread crumbs to Feld (this is known as an output contract). Levy stopped making bread crumbs (and dismantled his bread crumb making machine) before the end of the term of the contract and Feld sued.
- Either party could have canceled the contract with 6 months notice, but Levy gave no notice.
- Both sides moved for summary judgment, but both motions were denied.
- Levy argued that the contract did not require him to produce any bread crumbs, only to sell all those that it did produce. When he stopped making bread crumbs, the contract was effectively voided.
- UCC §2-306 specifically states that output contracts are held to mean a good faith output that requires best efforts.
- Both sides appealed to the Appellate Court, and the Trial Court’s dismissal of the motions for summary judgment were affirmed. Finally, both parties appealed to the NY Supreme Court.
- The NY Supreme Court upheld dismissal of the motions for summary judgment, and remanded the case for trial.
- The NY Supreme Court found that there is a promise implied in the contract for Levy to try in good faith to “keep crumbling.” The question remains whether Levy stopped crumb production in good faith.
- The Court found that it would be bad faith for Levy to stop crumb production just because their profits aren’t as high as they expected, but it would be good faith for Levy to stop crumb production if they incurred losses from such production that were “more than trivial”. The question of which is the case, the Court says, is a matter for the factfinder.
- UCC §2-306 states, “reasonable elasticity in the requirements is expressly envisioned by this section and good faith variations from prior requirements are permitted even when the variations may be such as to result in a discontinuance. A shut-down by a requirements buyer for lack of orders may be permissible, when a shut-down merely to curtail losses would not.”
- In this case, the Court might grant damages, and not specific performance if Feld wins, because it would be difficult to monitor Levy’s rebuilding of the bread crumb making machine.