Feld v. Henry S. Levy & Sons, Inc.

• Decision Date: 08 July 1975
• Citation: 335 N.E.2d 320,373 N.Y.S.2d 102,37 N.Y.2d 466
• Parties: , 335 N.E.2d 320, 17 UCC Rep.Serv. 365 Fred FELD, doing business as Crushed Toast Co., Appellant-Respondent, v. HENRY S. LEVY & SONS, INC., Respondent-Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 102

373 N.Y.S.2d 102

37 N.Y.2d 466, 335 N.E.2d 320, 17 UCC

Rep.Serv. 365

Fred FELD, doing business as Crushed Toast Co., Appellant-Respondent, v. HENRY S. LEVY & SONS, INC., Respondent-Appellant.

Court of Appeals of New York.

July 8, 1975.

Julius Zizmor, New York City, for appellant-respondent.

Herbert Plaut, New York City, for respondent-appellant.

COOKE, Judge.

Plaintiff operates a business known as the Crushed Toast Company and defendant is engaged in the wholesale bread baking business. They entered into a written contract, as of June 19, 1968, in which defendant agreed to sell and plaintiff to purchase 'all bread crumbs produced by the Seller in its factory at 115 Thames Street, Brooklyn, New York, during the period commencing June 19, 1968, and terminating June 18, 1969', the agreement to 'be deemed automatically renewed thereafter for successive renewal periods of one year' with the right to either party to cancel by giving not less than six months notice to the other by certified mail. No notice of cancellation was served. Additionally, pursuant to a contract stipulation, a faithful performance bond was delivered by plaintiff at the inception of the contractual relationship, and a bond continuation certificate was later submitted for the yearly term commencing June 19, 1969.

Interestingly, the term 'bread crumbs' does not refer to crumbs that may flake off bread; rather, they are a manufactured item, starting with stale or imperfectly appearing loaves and followed by removal of labels, processing through two grinders, the second of which effects a finer granulation, insertion into a drum in an oven for toasting and, finally, bagging of the finished product.

Subsequent to the making of the agreement, a substantial quantity of bread crumbs, said to be over 250 tons, were sold by defendant to plaintiff but defendant stopped crumb production on about May 15, 1969. There was proof by defendant's comptroller that the oven was too large to accommodate the drum, that it was stated that the operation was 'very uneconomical', but after said date of cessation no steps were taken to obtain more economical equipment. The toasting oven was intentionally broken down, then partially rebuilt, then completely dismantled in the summer of 1969 and, thereafter, defendant used the space for a computer room. It appears, without dispute, that defendant indicated to plaintiff at different times that the former would resume bread crumb production if the contract price of 6 cents per pound be changed to 7 cents, and also that, after the crumb making machinery was dismantled, defendant sold the raw materials used in making crumbs to animal food manufacturers.

Special Term denied plaintiff's motion for summary judgment on the issue of liability and turned down defendant's counter-request for a summary judgment of dismissal. From the Appellate Division's order of affirmance, by a divided court, both parties appeal.

Defendant contends that the contract did not require defendant to manufacture bread crumbs, but merely to sell those it did, and, since none were produced after the demise of the oven, there was no duty to then deliver and, consequently from then on, no liability on its part. Agreements to sell all the goods or services a party may produce or perform to another party are commonly referred to as 'output' contracts and they usually serve a useful commercial purpose in minimizing the burdens of product marketing (see 1 Williston, Contracts (3d ed.), § 104A). The Uniform Commercial Code rejects the ideas that an output contract is lacking in mutuality or that it is unenforceable because of indefiniteness in that a quantity for the term is not specified (6 Encyclopedia New York Law, Contracts, § 442, 1974--1975 Supp. by Professor Schwartz, p. 43). Official Comment 2 to section 2--306 (McKinney's Cons.Laws of N.Y., Book 62 1/2, Uniform Commercial Code, pp. 206--207) states in part: 'Under this Article, a contract for output * * * is not too indefinite since it is held to mean the actual good faith output * * * 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 * * * will proximate a reasonably foreseeable figure.' (See, also, Matter of United Cigar Stores Co. of Amer., D.C., 8 F.Supp. 243, 244, affd., 2 Cir., 72 F.2d 673, cert. den. Sub nom., Consolidated Dairy Prods. Co. v. Irving Trust Co., 293 U.S. 617, 55 S.Ct. 210, 79 L.Ed. 706; 9 N.Y.Jur., Contracts, § 10, p. 531.)

The real issue in this case is whether the agreement carries with it an implication that defendant was obligated to continue to manufacture bread crumbs for the full term. Section 2--306 of the Uniform Commercial Code, entitled 'Output, Requirements and Exclusive Dealings' provides:

'(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.

'(2) A lawful agreement by either the seller or the buyer For exclusive dealing in the kind of goods concerned Imposes unless otherwise agreed an obligation By the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.' (Emphasis supplied.)

The Official Comment thereunder reads in part: 'Subsection (2), on exclusive dealing, makes...