negotiating long-term requirements contracts with...

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Presenting a live 90-minute webinar with interactive Q&A

Negotiating Long-Term Requirements

Contracts with Suppliers Assigning Contractual Risks, Navigating Differing Court Interpretations of UCC Section 2-306

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

WEDNESDAY, APRIL 13, 2016

Huu Nguyen, Partner, Squire Patton Boggs, New York

Sarah K. Rathke, Partner, Squire Patton Boggs, Cleveland

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Long-Term Requirements Contracts with Suppliers Drafting, Negotiation and Enforcement Challenges

Sarah Rathke Esq. & Huu Nguyen, Esq.

6 squirepattonboggs.com

About the Speakers

Huu Nguyen, Partner Squire Patton Boggs, New York, [email protected]

Huu is a deal lawyer, focusing his practice on commercial and corporate transactions in the technology and media space. He counsels and assists clients with complex commercial arrangements, strategic relationships, financial regulatory matters, privacy and security matters, licensing, outsourcing, cyber law, intellectual property rights and rights of publicity and personality. He also helps his clients with accelerator and foundry formations and associated fund formations, mergers and acquisitions, corporate governance, corporate formation and other corporate matters.

Sarah K. Rathke, Partner Squire Patton Boggs, Cleveland, [email protected]

Sarah is a trial lawyer whose practice focuses on supply chain disputes. She also advises clients on supply chain compliance issues, corporate social responsibility issues in the supply chain, and working with NGOs on supply chain issues. Sarah is co-author of the 2016 treatise, Legal Blacksmith: How to Avoid and Defend Supply Chain Disputes, and is a frequent speaker on supply chain topics.

mailto:[email protected]

mailto:[email protected]


Resources

http://www.globalsupplychainlawblog.com/

Sarah’s Book:

Legal Blacksmith: How to Avoid and

Defend Supply Chain Disputes


Overview

This talk will address issues from the Buyer’s perspective and its

requirements, and not from the Supplier’s perspective

Address common scenarios/challenges

Allocation of risk is ultimately based on leverage

Take into account number of suppliers, integration points, exclusivity or not


Overview

Outline of Talk:

Overview

UCC §2-306

Minimum quantities

Expected and estimated purchase levels

Price escalations

Reduction and excused performance

Scheduled delays

Changes to lead time

Amendments and variations

Avoiding and/or addressing contractual and enforcement pitfalls


Overview

We will focus on supply, delivery time, and pricing controls

We won’t focus on these things, but they all play a role in long term supply

agreements in general:

Cooperation, dispute resolution, audit, project management

Indemnification, limitations of liability, warranties, insurance

Flow downs to sub-suppliers, contractors

Partnership vs. Contractors


Overview

Risk and commitment sit on a spectrum

From Buyer’s Perspective

No commitment to

supply/purchase certain

amounts (PO by PO basis)

AND seller has flexibility in

pricing and delivery

Promise to purchase all

products supplied by seller

AND seller has flexibility in


No commitment to

supply/purchase certain

amounts (PO by PO basis)

AND no flexibility in pricing

or delivery

Promise to supply all

products needed by buyer

AND buyer has flexibility in


Commitment

Risk


Overview

What are the benefits with long-term requirements contracts?

Certainty, certainty, certainty

Locked in supply and price

Locked in Buyer/Seller

Long-term relationship permits more flexibility in negotiating bespoke terms


Overview

What are the legal risks with long-term requirements contracts?

More risk of breaches by either party because buyer can’t produce goods or

seller no longer has static needs – or when the economics of the deal

change

More risk of upstream breaches by sub-suppliers


Overview

How can businesses best mitigate risk when drafting and negotiating long-

term requirements contracts?

That’s what this talk is about!


UCC § 2-306

§ 2-306. Output, Requirements and Exclusive Dealings.

(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.


UCC § 2-306

Commentary:

1. Subsection (1) of this section, in regard to output and requirements, applies

to this specific problem the general approach of this Act which requires the

reading of commercial background and intent into the language of any

agreement and demands good faith in the performance of that

agreement. It applies to such contracts of nonproducing establishments

such as dealers or distributors as well as to manufacturing concerns.

2. Under this Article, a contract for output or requirements is not too

indefinite since it is held to mean the actual good faith output or

requirements of the particular party. Nor does such a contract lack mutuality

of obligation since, under this section, the party who will determine quantity

is required to operate his plant or conduct his business in good faith and

according to commercial standards of fair dealing in the trade so that his

output or requirements will approximate a reasonably foreseeable figure. …


UCC § 2-306

Buyers in requirements contracts must use good faith in defining what

their requirements are. Attempts to stockpile products beyond a buyer’s

actual requirements – whether in anticipation of a contract ending or a price

increase – constitute bad faith. Enzo Biochem, Inc. v. Affymetrix, Inc., 2013

U.S. Dist. LEXIS 18599 (S.D.N.Y. Dec. 6, 2013).


UCC § 2-306

Law is not settled on whether a requirements contract would be found

enforceable if it were a non-exclusive arrangement.

Majority view is that valid requirements contract requires that the buyer and

seller agree implicitly or explicitly to an exclusive commercial relationship.

But, a minority view does not require exclusivity: General Motors Corp. v.

Paramount Metal Products Co., 90 F. Supp. 2d 861, 873-74 (E.D. Mich.

2000) (distinguishing section 2-306(1) from 2-306(2) and asserting that all

requirements contracts may not be exclusive in nature); Hoover's Hatchery,

Inc. v. Utgaard, 447 N.W.2d 684, 688 (Iowa App. 1989) (“Nothing in the

statutory language of section [2-306], or in the official comments to that

section, suggests that exclusivity is a prerequisite to the establishment of a

requirements contract").


UCC 2 vs CISG

For the international sale of goods, the Convention on the International Sale

of Goods (CISG) may apply unless disclaimed

Our discussion will focus on UCC 2 and US contract law and not CISG

UCC 2 covers the sales of goods

All 50 states have enacted some version of UCC 2

Our talk will focus mainly on UCC § 2-306, but other sections also apply and

we will discuss those briefly


Minimum quantities

A minimum quantity requirement puts a floor on what Buyer is willing to order

and Supplier is willing to supply

Typical for sophisticated parties – maximum quantities are too

Minimum quantities can be expressed as actual quantities, percentage of

Supplier’s production, etc.


Minimum quantities

Example Requirements Clause with Minimum Quantities:

Purchase and Sale. Subject to and in accordance with the terms and

conditions of this Agreement, during the Term, Buyer shall purchase from

Supplier, and Supplier shall manufacture and sell to Buyer, 100 percent of

Buyer’s requirements for the Goods (the “Requirements”). At a minimum,

the Requirements shall require supplier to manufacture and Buyer to

purchase 50 Goods per month.



Forecasting in business is common; common to communicate forecasts to

suppliers

Forecasts are communicated in a variety of ways

Can create binding contractual obligations; specify clearly whether forecasts

are intended to be binding

Suppliers may expend costs based on forecasts and estimates



6th Circuit: Court held buyer’s forecast was binding because goods were

specially manufactured for the buyers, and because the buyer knew that the

product price was calculated based on anticipated order quantity. Detroit Radiant

Products Company v. BSH Home Appliances Corporation, 473 F.3d 623, 61

U.C.C. Rep. Serv. 2d (Callaghan) 701 (6th Cir. 2007).

In Georgia, court limited buyer’s damages to the amount of purchases buyer

forecasted to the supplier, reasoning that because the buyer knew that the

supplier relied on the forecasts, the buyer’s forecasts were binding, and

additional damages were not legally supported. Scovill Fasteners, Inc. v.

Northern Metals, Inc., 303 Ga. App. 246, 692 S.E.2d 840, 71 U.C.C. Rep. Serv.

2d (Callaghan) 263 (Ga. App. 2010).



The parties may also create limits on the quantities to be sold in a

requirements contract by stating an estimate. If they do, they will not be

obligated to supply an unreasonably disproportionate quantity above

that estimate per UCC § 2-306(1), although the buyer still may reduce its

purchases to zero, constrained only by good faith, even with a stated

estimate. Canusa Corp. v. A & R Lobosco, Inc., 986 F. Supp. 723, 728-29

(E.D.N.Y. 1997).

It is unwise to define the phrase "unreasonably disproportionate" in UCC §

2-306(1) in terms of rigid quantities. Instead, when construing the phrase, the

following factors should be considered: (1) the amount by which the

requirements exceeded the contract estimate; (2) whether the seller had any

reasonable basis on which to forecast or anticipate the requested increase;

(3) the amount, if any, by which the market price of the goods exceeded the

contract price; (4) whether such an increase in market price was itself

fortuitous; and (5) the reason for the increase in requirements. Orange &

Rockland Utilities, Inc. v. Amerada Hess Corp., 59 A.D.2d 110, 397 N.Y.S.2d

814, 1977 N.Y. App. Div. LEXIS 12466 (N.Y. App. Div. 2d Dep't 1977).



Example definitions

Quantity. Supplier will provide Buyer with 100 percent of Buyer’s requirements for

the Goods, whereas:

(a) such quantity includes Buyer’s production, replacement, and Inventory Bank

requirements of the Goods;

(b) throughout the Term, Supplier shall maintain the capacity and availability to

supply Buyer’s peak daily, weekly, and annual requirements of Goods (as

communicated by Buyer to Supplier in Purchase Orders or Releases);

(c) throughout the Term, Supplier shall, at its sole expense and risk, maintain an

Inventory Bank;

(d) from time-to-time, Buyer may, but shall not be required to, provide

Supplier with Forecasts. Forecasts are for informational purposes only and do

not create any binding obligations on behalf of either Party;


Price escalation

Buyer would want right to lower prices

Supplier would want right to raise prices

But price escalation upwards is issue for Buyer

Buyer usually asks for a price lock


Price escalation

§ 2-305. Open Price Term.

(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.

(2) A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

(3) When a price left to be fixed otherwise than by agreement of the parties fails to be fixed through fault of one party the other may at his option treat the contract as cancelled or himself fix a reasonable price.

(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.


Price escalation

In breach-of-contract action by buyer for defendant seller's failure to ship full

quantity of rayon rejects ordered by buyer, court held (1) that parties'

failure to fix price of rejects was covered by UCC § 2-305(1) and Official

Comment 1, under which price was "reasonable price" that was equivalent to

market price; (2) that since buyer had ordered up to 3,000 tons of rejects

based on its customer's estimated requirements for forthcoming year, such

amount--under requirements quantity-term, "gap-filler" provisions of UCC §

2-306(1)--established basis for measuring buyer's damages for lost profits;

and (3) that shipments to other buyers, which included prices, could be

used under UCC § 2-305(1) to establish reasonable market price of

goods that should have been shipped to buyer. Pulprint, Inc. v.

Louisiana-Pacific Corp., 124 Misc. 2d 728, 477 N.Y.S.2d 540, 1984 N.Y.

Misc. LEXIS 3322 (N.Y. Sup. Ct. 1984).


Price escalation

Example of Pricing Control Provisions:

Price. The prices for the Goods shall be the prices set forth on Schedule 1

attached hereto (“Prices”). All Prices include, and Seller is solely responsible

for, all costs and expenses relating to packing, crating, boxing, transporting,

loading and unloading, customs, Taxes, tariffs and duties, insurance and any

other similar financial contributions or obligations relating to the production,

manufacture, sale and delivery of the Goods. All Prices are firm and are not

subject to increase for any reason, including changes in market conditions,

increases in raw material, component, labor or overhead costs or because of

labor disruptions[, changes in program timing or length,] or fluctuations in

production volumes.


Price escalation

Most Favored Customer (MFC) protection

E.g., match to best price the Seller offers to other buyers

Sellers often qualify as best price for similar buyers

How to prove best price for similar buyers?


Price escalation

Example of MFC:

Most Favored Customer. Seller represents and warrants that [each of] the

Prices set forth on Schedule 1 is at least as low as the price charged by

Seller to other buyers for the same Goods or similar goods. If, at any time

during the Term, Seller charges any other Buyer a lower price for the same

Goods or similar goods, Seller shall apply that price to all same or similar

Goods under this Agreement. If Seller fails to apply the lower price, Buyer may,

at its option, in addition to all of its other rights under this Agreement or at Law,

terminate this Agreement without liability. The Parties shall reflect any

adjustment to pricing under this Section in an amendment to Schedule 1;

provided, however, that, notwithstanding anything to the contrary contained in

this Agreement, the execution and delivery of any such amendment by each of

the Parties will not be a condition to the effectiveness of such price adjustment.


Price escalation

If Seller has right to escalate price, Buyer should put a collar or limit in

Only for when conditions occurs, such as increase in costs not otherwise accounted

for by the parties, or change in requirements from customers

Collar around increase

Tie to Force Majeure and right for Customer to terminate


Schedule delays

Do parties have interlocking obligations?

Does Buyer need to submit orders by certain dates with certain details?

Does Buyer need to provide details for manufacture of goods?

What options does Buyer have if Supplier delays?


Schedule delays

§ 2-311. Options and Cooperation Respecting Performance.

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

(3) of Section 2-204) 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.

(3)Where such specification would materially affect the other party's

performance but is not seasonably made or where one party's cooperation

is necessary to the agreed performance of the other but is not

seasonably forthcoming, the other party in addition to all other remedies

(a) is excused for any resulting delay in his own performance; and

(b) may also either proceed to perform in any reasonable manner or after

the time for a material part of his own performance treat the failure to

specify or to cooperate as a breach by failure to deliver or accept the

goods.


Schedule delays

From UCC Comments on § 2-311:

Subsection (3) applies when the exercise of an option or cooperation by one

party is necessary to or materially affects the other party's performance, but it

is not seasonably forthcoming; the subsection relieves the other party from

the necessity for performance or excuses his delay in performance as the

case may be. The contract-keeping party may at his option under this

subsection proceed to perform in any commercially reasonable manner

rather than wait.


Schedule delays

§ 2-612. “Installment Contract”; Breach

(1) An “installment contract” is one which requires or authorizes the delivery

of goods in separate lots to be repeatedly accepted, even though the

contract contains a clause “each delivery is a separate contract” or its

equivalent.

(2) The buyer may reject any installment which is non-conforming if the non-

conformity substantially impairs the volume of that installment and cannot be

cured …; but if the non-conformity does not fall within subsection (3)

and the seller gives adequate assurance of its cure the buyer must

accept that installment.

(3) Whenever non-conformity or default with respect to one or more

installments substantially impairs the value of the whole contract there is a

breach of the whole. But the aggrieved party reinstates the contract if he

accepts a non-conforming installment without seasonably notifying of

cancellation or if he brings an action with respect only to past installments or

demands performance as to future installments.


Schedule delays

Examples of Delivery Clause with Time of the Essence:

Shipment and Delivery Requirements. Time, quantity and delivery to the

Delivery Location are of the essence under this Agreement. Seller shall

procure materials for, fabricate, assemble, pack, mark and ship Goods

strictly in the quantities, by the methods, to the Delivery Locations and by the

Delivery Dates, specified in this Agreement or in an applicable Purchase

Order or Release. Delivery times will be measured to the time that Goods are

actually received at the Delivery Location.


Schedule delays

Example of Delay Protections Clause:

Duty to Advise. Supplier shall promptly provide written Notice to Buyer of any

of the following events or occurrences, or any facts or circumstances

reasonably likely to give rise to any of the following events or occurrences: (a)

any failure by Supplier to perform any of its obligations under this Agreement;

(b) any delay in delivery of Goods; (c) any defects or quality problems

relating to Goods; (d) any change in Control of Supplier; (e) any deficiency in

Buyer specifications, samples, prototypes, or test results relating to this

Agreement; or (f) any failure by Supplier, or its subcontractors or common

carriers, to comply with Law.



A lead time is the latency between the initiation and execution of a process.

Lead time between the placement of an order and delivery

If time is of the essence (as stated in agreement or otherwise) and there is

no slack in the lead time for Seller, costumer can claim breach

Failure in lead time can cause cascading failure at critical integration points

in the supply chain



Seller obligation to account for interruption

Seller obligation to give notice of potential delay

Limit excuse for Sellers under a Force Majeure clause



§ 2-309. Absence of Specific Time Provisions; Notice of Termination.

(1) The time for shipment or delivery or any other action under a contract if

not provided in this Article or agreed upon shall be a reasonable time.

(2) Where the contract provides for successive performances but is

indefinite in duration it is valid for a reasonable time but unless otherwise

agreed may be terminated at any time by either party.

(3) Termination of a contract by one party except on the happening of an

agreed event requires that reasonable notification be received by the other

party and an agreement dispensing with notification is invalid if its operation

would be unconscionable.



Example of Delay Protections Clauses:

Protection Against Supply Interruptions. Seller shall, at Seller’s sole cost and

expense, take such actions as are necessary or appropriate to ensure the

uninterrupted supply of Goods to Buyer for not less than [NUMBER] days

during any foreseeable or anticipated event or circumstance that could interrupt

or delay Seller’s performance under this Agreement, including any labor

disruption, whether or not resulting from the expiration of Seller’s labor

contracts (and whether or not such occurrence constitutes a Force

Majeure Event hereunder). Seller shall notify Buyer at least [NUMBER] days

before the termination or expiration of any collective bargaining or other labor

agreement that relates to Seller’s Personnel involved in the production or

delivery of the Goods.



Mandatory Change (e.g., by notice)

Change due to change in law, emergencies, recalls

Changes due to change in design; firming up inadequate specs; downstream

recalls,

Optional Changes (e.g., by amendments)

Process to negotiate in good faith changes or variations to Master Supply

Agreement

Exception to exclusivity if Seller can't supply or Buyer can’t buy

Buyer termination right if agreement cannot be met

Cost issues:

Who should bear costs of changes?

Party that asks for the changes or party that causes the need for the change?



Example of Change Control Procedures:

Certain Changes. Seller shall promptly make any changes Buyer directs in writing with

respect to the Goods, which may include changes in the design, drawings,

specifications, processing, inspection, testing, quality control, methods of packing and

shipping or the date or place of delivery. Any changes pursuant to this Section will not

affect the Price or time for delivery of Goods unless (i) within [NUMBER] days after Buyer’s

notice to Seller of the change, Buyer receives from Seller written Notice of a claim for

adjustment with all sufficient information and documentation regarding Seller’s costs and

production timing resulting from such changes to allow Buyer to perform an audit and verify

such claim, and (ii) after auditing and verifying such claim, the results of such audit indicate

that, in order to implement such Buyer-requested changes, Seller’s actual out-of-pocket costs

increased by a material amount or that implementing such changes reasonably and

appropriately caused a delay in the Delivery Date of any affected Goods. Seller may increase

the Prices hereunder in a per-unit amount solely to the extent necessary to compensate

Seller for such commercially reasonable cost increases (but not to allow for any

additional margin). If Buyer’s audit and verification results indicate that Seller’s costs

have or should have actually decreased, the Prices hereunder shall be deemed

decreased on a per-unit basis to reflect the amount of any such cost savings. Nothing in

this Section, including any disagreement with Buyer as to any adjustment in price or time for

performance, will excuse Seller from proceeding with this Agreement as changed.



If no minimum quantity specified, Buyer can just simply stop submitting

purchase orders or Seller can simply stop accepting purchase orders

Even if minimum quantity specified, Force Majeure Events may give rise to

reduction

Agreement should account for what happens if there is a reduction or

termination

Buyer will want certainty when there is a reduction in demand for Goods

(either through Seller’s request or Buyer’s request)

Buyer will want a smooth transition when reducing, suspending or

terminating a relationship


Reduction and Excused Performance

Good faith, rather than estimate stated in contract, applied in determining

whether seller breached contract by reducing output; output agreement is not

transformed into fixed quantity contract by insertion of estimate. Canusa

Corp. v A & R Lobosco, 986 F. Supp. 723, 1997 U.S. Dist. LEXIS 19402

(E.D.N.Y. 1997).

Buyer was not in breach of a requirements contract, assuming one existed,

because it ceased ordering from a seller in good faith when the buyer's own

customer ended its ordering; a good-faith termination by the buyer in a

requirements contract will excuse further performance. Goaltex Corp. v

Association for the Blind & Visually Impaired, 979 N.Y.S.2d 481, 2014 NY

Slip Op 24007, 2014 N.Y. Misc. LEXIS 22 (N.Y. Sup. Ct. 2014).



§ 2-615. Excuse by Failure of Presupposed Conditions.

Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.

(b) Where the causes mentioned in paragraph (a) affect only a part of the seller's capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.

(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.



§ 2-616. Procedure on Notice Claiming Excuse.

(1) Where the buyer receives notification of a material or indefinite delay or

an allocation justified under the preceding section he may by written

notification to the seller as to any delivery concerned, and where the

prospective deficiency substantially impairs the value of the whole contract

under the provisions of this Article relating to breach of installment contracts

(Section 2-612), then also as to the whole,

(a) terminate and thereby discharge any unexecuted portion of the contract;

or

(b) modify the contract by agreeing to take his available quota in substitution.

(2) If after receipt of such notification from the seller the buyer fails so to

modify the contract within a reasonable time not exceeding thirty days the

contract lapses with respect to any deliveries affected.

(3) The provisions of this section may not be negated by agreement except in

so far as the seller has assumed a greater obligation under the preceding

section


Reduction and Excused Performance

In action by buyer for breach by seller of contract for sale of 11,000 pairs of

combat boots, where (1) buyer had contract to resell boots to Government of

Ghana (2) seller agreed to manufacture boots in Korea and deliver them to

Ghana, and (3) en route from Korea to Ghana via United States, boots were

destroyed in train derailment in Nebraska …

Court held Seller was not excused from performance under UCC § 2-615(a),

in that (a) it failed to prove that contingency (train derailment) that made

performance commercially impracticable was not foreseeable at time

contract was made, and (b) parties' contract did not contain specific,

exculpatory language excusing nonperformance in event of train derailment.

Bende & Sons, Inc. v. Crown Recreation, Inc., Kiffe Products Div. (1982, ED

NY) 548 F Supp 1018, 34 UCCRS 1587, affd without op (1983, CA2 NY) 722

F2d 727 (apparently applying UCC as rule of federal common law).



Example of Force Majeure Clause:

Force Majeure. Any delay or failure of either Party to perform its obligations

under this Agreement will be excused to the extent that the delay or failure was

caused directly by an event beyond such Party’s control, without such Party’s

fault or negligence and that by its nature could not have been foreseen by such

Party or, if it could have been foreseen, was unavoidable (which events may

include natural disasters, embargoes, explosions, riots, wars or acts of

terrorism) (each, a “Force Majeure Event”). Seller’s financial inability to

perform, changes in cost or availability of materials, components or services,

market conditions or Seller actions or contract disputes will not excuse

performance by Seller under this Section. …



Example of Force Majeure Clause Continued:

… During any Force Majeure Event, Buyer may, at its option (a) purchase

goods similar to the Goods from other sources without liability to Seller (and all

such goods will be deemed to be Goods purchased under this Agreement for

purposes of satisfying any quantity requirements applicable to Buyer

hereunder), and require Seller to reimburse Buyer for any additional costs to

Buyer of obtaining the substitute goods compared to the Prices for such Goods

under this Agreement, (b) require Seller to deliver to Buyer all finished Goods,

work in process or parts and materials produced or acquired for work under this

Agreement, or (c) require Seller to provide Goods from other sources in

quantities and at a time requested by Buyer and at the Prices for the Goods

hereunder. …. If the delay lasts more than such [NUMBER]-day period, or if

Seller does not provide such adequate assurances, Buyer may immediately

terminate this Agreement without any liability to Seller.



Example of Force Majeure Clause Continued:

… Seller shall give Buyer prompt written notice of any event or circumstance

that is reasonably likely to result in a Force Majeure Event, and the anticipated

duration of such Force Majeure Event. …The rights granted to Seller with

respect to excused delays under this Section are intended to limit Seller’s

rights under theories of force majeure, commercial impracticability,

impracticability or impossibility of performance, or failure of presupposed

conditions or otherwise, including any rights arising under Section 2-615

or 2-616 of the UCC.



Example of Termination:

Buyer’s Right to Terminate for Cause. Buyer may terminate this Agreement, by

providing written Notice to Seller:

...

if Seller takes any action, or fails to take any action, required under this

Agreement or any other agreement between Buyer and Seller, or as

reasonably requested by Buyer, the result of which is any imminent interruption

or delay, or the threat of an imminent interruption or delay, in any production at

any of Buyer’s or its customer’s manufacturing facilities;


Avoiding and/or addressing contractual and

enforcement pitfalls

Communicate expectations

Internal flow-through of information across departments/functions

Avoid inadvertent contract waivers




§ 2-209. Modification, Rescission and Waiver.

(1) An agreement modifying a contract within this Article needs no consideration to be

binding.

(2) A signed agreement which excludes modification or rescission except by a signed writing

cannot be otherwise modified or rescinded, but except as between merchants such a

requirement on a form supplied by the merchant must be separately signed by the other

party.

(3) The requirements of the statute of frauds section of this Article (Section 2-201) must be

satisfied if the contract as modified is within its provisions.

(4)Although an attempt at modification or rescission does not satisfy the requirements of

subsection (2) or (3) it can operate as a waiver.

(5) A party who has made a waiver affecting an executory portion of the contract may retract

the waiver by reasonable notification received by the other party that strict performance will

be required of any term waived, unless the retraction would be unjust in view of a material

change of position in reliance on the waiver.




Example No Oral Modification or Waiver Clause:

This Agreement may not be modified, waived, or rescinded other

than by a writing executed by both parties. No verbal

communication, representation, conduct, course of performance,

course of dealing, usage of trade, or purported waiver or estoppel

shall modify or alter the terms of this Agreement.

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