Business concerns sometimes enter into sales agreements that do not specify a particular quantity to be sold.  This might be helpful, for instance, if a manufacturer would like to secure a commitment from a supplier to meet the manufacturer’s needs, but it is not certain what the needs will be.  These business relationships do not always work out over the long term, however, and litigation often results.  In these cases, courts have struggled to establish clear, consistent standards with respect to the validity and terms of open quantity contracts.  Many of these cases turn on the application of amorphous “good faith” standards, raising concerns about unpredictability and the possibility that the courts are effectively imposing requirements on the parties that they never actually contemplated. 

Bravely seeking to bring some coherence and clarity to this difficult area of the law, Shelley Smith has a helpful new article on SSRN entitled “A New Approach to the Identification and Enforcement of Open Quantity Contracts: Reforming the Law of Exclusivity and Good Faith.”  She describes her three-part reform agenda as follows: 

This article identifies three areas for reform in the area of open quantity contracts. First, there is a conflict among the courts over whether the exclusivity rule, variations on the exclusivity rule, or the duty of good faith are required to satisfy the mutuality and definiteness doctrines for enforcing open quantity term contracts. I propose a new validation rule to resolve this conflict. Second, courts are utilizing flawed interpretive methods to conclude that that business documents such as master purchase agreements, volume discount offers, blanket purchase orders and buyer’s options are binding requirements contracts. The article offers a principled basis for identifying valid open quantity contracts that will lead to consistent results without strait-jacketing the parties’ ability to tailor the contract to their business needs. Finally, the article suggests an amendment to UCC 2-306(1) to provide a uniform standard for breach of the implied duty of good faith on the quantity-determining party.

The article recently appeared in print at 43 Valparaiso U. L. Rev. 871 (2009).