Printable Format84-2-306. 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.
(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.
History: L. 1965, ch. 564, § 40; January 1, 1966.
KANSAS COMMENT, 1996
1. Subsection (1) deals with output and requirements contracts—contracts that measure quantity in terms of the seller's output or the buyer's requirements, rather than a definite amount. This subsection continues previous law in recognizing the validity of such contracts. See Kansas Comment 1983 to this section. For a case relying on this section to uphold a requirements contract, see Miller v. Sirloin Stockade, 224 K. 32, 578 P.2d 247 (1978). Under this subsection, an output or requirements term in a contract means the party's actual output or requirements as occur in good faith. The party may not, however, tender or demand a quantity that is unreasonably disproportionate to stated estimates or previous experience. If in good faith a party has no actual output or requirements, it has no duty to perform under the contract; in such cases, courts find that even substantial good faith reductions are not unreasonably disproportionate. In evaluating whether a reduction is made in good faith, courts distinguish between reductions "merely to curtail losses" (bad faith), see Official Comment 2, and reductions because of external events that threaten the viability of the entire undertaking (good faith). However, courts apply the unreasonably disproportionate limitation far more strictly to increases in requirements or output, finding substantial increases, even if made in good faith, to be impermissible. See Atlantic Track & Turnout Co. v. Perini Corp., 989 F.2d 541 (1 st Cir. 1993).
2. For a requirements contract to be valid, case law requires that the buyer promise to buy the goods exclusively from the seller. If such exclusivity is absent, the contract lacks mutuality, since the buyer might order all its requirements from other suppliers. See Propane Indus., Inc. v. General Motors Corp., 429 F. Supp. 214 (W.D. Mo. 1977) (applying Kansas law).
3. Subsection (2) provides that in an exclusive dealing contract, both parties are obligated to use best efforts in their performance of the contract, unless they agree otherwise. Official Comment 5 to this section indicates that "best efforts" requires reasonable diligence in addition to good faith.
Law Review and Bar Journal References:
Subsection (1) mentioned as relaxing the strict requirement of certainty as to quantity, Laurence A. Stanton, 10 W.L.J. 327, 330, 332 (1971).
CASE ANNOTATIONS
1. "Requirements contract" valid under this section. Miller v. Sirloin Stockade, 224 Kan. 32, 578 P.2d 247.
2. Requirement contracts held valid and binding under this section. Propane Indus., Inc. v. General Motors Corp., 429 F. Supp. 214, 219.
3. Implied covenant to use best efforts will be implied in an exclusive dealing contract unless parties agree otherwise. Flight Concepts Ltd. Partnership v. Boeing Co., 819 F. Supp. 1535, 1552 (1993).
4. Requirements contract; to be valid buyer must promise to buy goods exclusively from seller. Fisherman Surgical Instruments v. Tri-amin Health, 502 F. Supp. 2d 1170, 1177 (2007).