The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. 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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The audio portion of the conference may be accessed via the telephone or by using your computer's
speakers. Please refer to the instructions emailed to registrants for additional information. If you
have any questions, please contact Customer Service at 1-800-926-7926 ext. 10.
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
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Long-Term Requirements Contracts with Suppliers Drafting, Negotiation and Enforcement Challenges
Sarah Rathke Esq. & Huu Nguyen, Esq.
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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.
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;
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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
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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.
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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.
§ 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.
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Reduction and excused performance
§ 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
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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).
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Reduction and excused performance
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. …
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Reduction and excused performance
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.
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Reduction and excused performance
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.
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Reduction and excused performance
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;
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Avoiding and/or addressing contractual and
enforcement pitfalls
Communicate expectations
Internal flow-through of information across departments/functions
Avoid inadvertent contract waivers
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Avoiding and/or addressing contractual and
enforcement pitfalls
§ 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.
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Avoiding and/or addressing contractual and
enforcement pitfalls
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.