On 7 Oct 2004 19:18:11 -0700, t_sargent@yahoo.com wrote:
I have a situation and I will attempt to make it as simple as possible.
I am interested to know the potential avenues of recourse for Company
A.
Company A has a contract with Company B to manufacture and provide all
of a specific product. A big order comes in from the customer and
Company B arbitrarily decides without consulting Company A that they
are not capable of filling the entire order. So, Company B gives 1/3
of the business to Company A and 1/3 each to Company C and Company D.
When Company A complains to Company B, they say that they did not feel
Company A was capable and that's the decisions. Of course, I am
Company A.
Any help would be appreciated. I am open to answering any and all
questions for the sake of clarification.
Sounds like a "requirements contract", in which B agrees to purchase
all of a specific product that it needs from A, and A agrees to supply
so much of that product as B requires. Or did I get the parties
backward? Requirements contracts in the US are governed by UCC 2-306.
To oversimplify, a requirements contract is valid so long as the
amount Customer requires is reasonable in light of their course of
dealing. So B could not demand a quantity that is unreasonably more
(or less) than B's estimated demand or prior purchases. What is
"unreasonable" is a suitable matter for hot dispute, but a quantity
that is clearly beyond A's capacity would be at least arguably
unreasonable. Nor could B go outside the established exclusive dealing
with A to procure its requirements from other vendors.
Neither the vendor nor the customer in a requirements contract can
just walk away from the contract. These contracts are binding and
commit the parties to a course of exclusive dealing and a mutual duty
to act in good faith and use their best efforts to fulfill the
contract.
In A's shoes, I would certainly be upset enough to start by getting
counsel to prepare a strongly worded letter reminding them of the
existence and binding character of the contract and the duty to abide
by it in good faith. B's actions are one of the courses of unfair
dealing that the laws on requirements contracts are intended to
discourage.
--
Not a lawyer,
Chris Green
