A. IMPLIED TERMS
Definition: This is where the court is “adding” terms to a K. The Court is not adding terms that the
parties didn’t want, rather it is adding terms that the parties must have intended to be in the K.
Implied in Fact v. Implied in law:

Implied in Fact: Based on the K, it is clear the parties must have intended for this term to be
part of the K.
o For example, assume person X is selling a bike for $100. The term “dollars” is implied
to mean American Dollars. It is not something that is needed to be said. Therefore,
based on the facts, it must have been a term of the K that we are dealing in US dollars.

Implied in Law: a term that the law implied; usually giving the K legal efficiency (quality of
being successful in producing an intended result).
1. DUTY TO USE BEST EFFORTS
Rule: A contract is still valid if one party's detriment is implied even if it is not an explicit element of
the contract. (Good faith).
Case Analysis: Wood v. Lucy, Lady Duff-Gordon:
Lady Duff-Gordon (LDG) (∆) contracted to give Wood (π) an exclusive right to market and license
all her designs and to endorse designs w/ her name. The way that it worked was that LDG, who was
sort of a designer, gave Wood the right to market and license all her designs and endorse designs with
her name. In other words, Woods was going to take his products and put LDG's name on the products
and market bound. She gave him permission to use her brand (name) to sell his products. The Ultimate
agreement if they would split the profits from the sales, evenly. The exclusive K required that they
split all profits from Wood's sales evenly. Lucy placed endorsement on clothes w/o Wood's knowledge
(contracts w/ Sears) and in violation of the K and Wood sued. What ended up happening is that LDG
placed endorsements on clothes w/o woods knowledge. In other words, she entered arrangements
where she lent her name to other companies–with Sears. This was in violation with the k w/ Woods.
Lack of Consideration (LDG’s argument)  Lucy’s detriment is giving Wood the exclusive use of her
name on his products. Wood is giving Lucy half of her profits ($). “If I make money, I’ll give you
half.” He is not promising that he is going to make profit. Therefore, it is an illusory promise. There
is no K because of a lack of Consideration.
Did Wood Promise anything  Not expressly. He did not promise to sell her products; he promised
that if he sold products, she would get a cut. The word IF alters an illusory promise. The argument:
he is only saying IF he sells these products, he will give a cut, but that is not a return promise.
Therefore, his end of the bargain is illusory. If he has not made a return promise the fact that she
made a promise is neither here nor there. We need both detriment and bargain for exchange.
 What was the outcome?  Woods DOES make a promise, it is just not explicit. Woods does
not “in so many” words promise that he will use reasonable efforts to place the ∆’s
indorsement and market her design, however, such a promise is to be implied. The court says
that his promise is that he will use "reasonable efforts" to sell her products. He never in writing
says that explicitly, however, this promise is implied. This means that it is so clear from the
entirety of the K that this is a promise that he has made, he has just not put it into words.
How do we know Woods Makes a Promise?

Exclusivity  She is only allowed to let him use her name. There is no one else that is allowed
to. No one would enter an arrangement where you have use if their name, but you are not
doing anything in return.

Business Enterprise  In the K he has a business enterprise that is prepared to market and
endorse her products.

Compensation  She was to be compensated only though a share of the profits. The
compensation arrangement would make no sense if he didn’t try to make money because there
would be no compensation w/o money.

Accounting for Profits  Obligation on him to account for profits. And if he wasn’t
promising to try to sell her products, that would not make sense either.
2. DUTY TO GIVE NOTICE IN SOME CIRCUMSTANCES
Rule: §309. Absence of Specific Time Provision; Notice of Termination.

If the time for shipment or delivery or any other action under a K, if not provided in this
Article or agreed upon, shall be a reasonable time.
a. This is an implied term. When dealing with missing dates for shipment or delivery,
assume a time that is reasonable (Court has a gap filler).
b. The problem with no delivery time, is that you will not know how or when to recover.

Where the K provides for successive performances but is indefinite in duration it is valid for
a reasonable time but unless otherwise agreed may be terminated a any time by either party.
a. If you don’t talk about an end point, we are going to give you an end point. It is
valid for a reasonable time depending on the industry and getting a new supplier.
b. For example, a supermarket has a standing K on berries with a supplier. The
arrangement is to ship berries every week, and the supermarket pays FMV. But the K
does not specify and end date. The reasonable time depends on the circumstances
(assume 6 months always). If the supplier terminated the K before 6 months, that is a
breach. If at the 6 months mark the supplier walks away, that is not a breach.

Termination of a K by one party except on the happening of an agreed event requires that
reasonable notification be received by the other party and agreement dispending with
notification is invalid if its operation would be unconscionable.
a. Give reasonable notice that you are going to terminate  look at the facts, how long
you were in the relationship, etc.
b. You don’t have to give notice if your K contains a “triggering” event. The even itself
is the pre-notification.
c. You can agree, in your K, that no notice is required to terminate  BUT you cannot
do that if the provision would be unconscionable (grossly unfair).
Case analysis: Leibel v. Raynor MFG:
Raynor entered into a verbal agreement to give Leibel an exclusive dealer-distributorship for Raynor’s
garage doors. Raynor was to provide garaged doors, operations, and parts to Leibel at the factory
distributor price. Leibel agreed to sell, install and service only Raynor’s products. The agreement
covered an area extending to a fifty-mile radium from Lexington, Kentucky. Leibel borrowed a
substantial amount of money to begin the business. After two years, sales of Raynor’s products
appeared to be decreasing. Raynor notified the ∆ that the relationship was terminated. In addition,
Leibel learned there was a new dealer-distributor in the area and that any future purchases Raynor’s
products would have to be made through the new dealer-distributor.
Transactions involving goods and merchandise fall under Article II of the UCC. The court finds that
distributorships fall under the UCC. The UCC requires that reasonable notice be given if the
agreement is for an indefinite duration. The Court interprets reasonable notice as relating to “the
circumstances under which notice is given and the extent of advance warning” not the method by
which notice is given. The Court holds that Raynor was required to give Leibel reasonable notice of
intent to terminate.
B. OBLIGATION OF GOOD FAITH
Definition: You can’t destroy the fruits (good part) of the K for another party. Every K has with it
an implied obligation to use good faith and fair dealing. Theis is a negative inference: “Don’t be bad.”
1. SATISFACTION CLAUSE
Rule: A clause that says the work/K/performance must be done to the other party’s satisfaction. It
gives the person, to be satisfied, power to say whether the performance was satisfactory.
Spotting satisfaction clauses:

Any provision that essentially says “the work must be don’t, subject to the approval or
satisfaction of the other party” is a satisfaction clause.
Framework of good faith and satisfaction clause:
1. What standard of satisfaction did the partied intend: Objective or Subjective?
a. Objective Standard: Would a reasonable person consider this work to be satisfactory?
i. For example, a window cleaner has a K that contains a “satisfaction
guarantee.” An objective standard would look at whether a reasonable
homeowner would be satisfied or dissatisfied with the work that is done.
b. Subjective Standard: Whether this person is genuinely/honestly dissatisfied.
i. For example, a window cleaner has a K that contains a “satisfaction
guarantee.” A subjective standard would look at whether the homeowner in
question was genuinely dissatisfied. If you had a particularly meticulous
homeowner and they see that there are some tiny areas that are still streaky and
they are genuinely dissatisfied, we ask if they are honestly dissatisfied and it is
not a pretense or anything, they are entitled to reject the work.
2. What type of K we are dealing with: Utility or Aesthetics? (How you determine Obj. or Subj.).
a. Utility (Objective): Something that is useful to the corporation (performing electrical
work behind the walls of the office).
b. Aesthetics (Subjective): The look and appearance of something is important (taking
wedding photos, buyer a car, buying a cake, getting a portrait).
2. GOOD FAITH UNDER ARTICLE 2
Two types of K’s under Sales Law:
1. Requirement K’s
a. Requirement’s buyer buys all its requirements form one given seller.
b. The seller agrees to supply the buyer with as much of a good as the buyer wants, in
exchange for the buyer’s agreement not to buy that good elsewhere.
i. Perspective of the Requirements Buyer: (1) Guaranteed source of their paper,
rather than giving to go to the open market. (2) Agreement made ahead of time
that the paper will be at a set price, no matter what.
ii. Perspective of the Requirements Seller: (1) Builds a customer base. (2) locks
in price so that person X cannot back out. Although, this means they take the
risk if their product (in the open market) being worth more.
c. The seller is not obligated to do the same, in kind.
d. For example, X purchases all its paper requirements from WB Mason. So, whatever
paper requirements X has, they are ALL going to be bought from WB Mason and in
turn, WB Mason will give X paper.
2. Output K’s
a. Seller sells their entire output (all products) to one particular buyer whether it
is large or small.
b. Seller has a guaranteed sale and do not have to deal with the hassle of making a new
one. Although, there may be someone out there who would have given them more.
3. WHERE K’S VEST DISCRETION
Rule: §306. A term which measures the quantity by the output of the seller, or the requirement of the
buyer means such actual output or requirements 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.

Requirement and Output K’s can lend themselves to bad faith (good faith argument).

There is a band in which the Requirements or Output sale purchase will take place. Person X
will agree to order at lease “this” much and nor more than “this” much.

K’s most of the time have a buffer (they will have an estimate or rage), but K’s do not always
have the buffer so we have this section that says you cannot go so far below or above what
is normal under the circumstances. For example, if every year you order 1,000 widgets but
now you over 100 or 5,000 (issue usually comes up with high requirements).
Case Analysis: Indiana-American Water Co. v. Town of Seelyville
In 1983, Water Company and Town entered a K which prices in pertinent part as follows: Company
agrees to sell to the Town, and Town agrees to purchase from Company, at the rates hereinafter
mentioned, such quantities of water as the Town may hereafter from time-to-time need, the term of
the K is 25 years and will expire in the year 2008. The K limits the quantity of water the Town may
purchase to one million gallons of water per day, the K contains other limitations and provides that
“in no event shall the Company be obligated to supply water in excess of the limitations on usage as
provided for expressly in this Agreement . . . .” in 1967 (many ears before the present K was
executed), Town acquired land which could be used as a wellfield to supply water. In 1997, Town
announced its plan to sell bonds to finance the construction of the improvements necessary to
obtain water from the wellfield.
It is not a full Requirements K because there was a cap (maybe that is all the water company could
provide). The city was binding itself to buy all the water from the company up to a million gallons
and from no one else. It is a Requirements K because of the elements of EXCLUSIVITY. Is
developing the well aa problem? Taking advantage of technology to decrease water requirements is a
good thing this is good faith and a legitimate reason for the lower requirements.