Baker v. Ratzlaff

Supreme Court of Kansas · Contracts

ContractsUCCGood FaithParol EvidenceDamagesgood faithtermination clauseUCC 1-203

Facts

The parties entered a written 1973 contract under which defendant would grow 380 acres of popcorn and plaintiff would buy the crop at $4.75 per hundredweight, with payment due when delivered and a clause allowing the grower, at his option, to retain or dispose of the remaining popcorn if plaintiff failed to pay at delivery. After plaintiff ordered delivery, defendant delivered two truckloads to plaintiff's Stratford, Texas plant on February 2 and 4, 1974, but neither defendant nor his employee asked the plant manager for payment, and the manager did not offer payment because checks were issued from plaintiff's Garden City office after weight tickets were sent there. In later phone calls about delayed deliveries, defendant mentioned equipment problems and illness but still did not demand payment. On February 11 defendant sent written notice terminating the contract for failure to pay on delivery, then resold the remaining popcorn to a third party at $8.00 per hundredweight.

Issue

Does the UCC duty of good faith apply to a seller's exercise of a contractual termination clause based on the buyer's alleged failure to pay on delivery, and was there sufficient evidence to support the trial court's finding that the seller breached that duty? The case also raised whether the trial court used an improper measure of damages and whether reversible evidentiary error was preserved.

Rule

Under K.S.A. 84-1-203, every contract or duty within the UCC imposes an obligation of good faith in its performance or enforcement, and that obligation applies to the exercise of a termination clause when the right to terminate is an inseparable incident of enforcing substantive contract provisions rather than a right to terminate at will. Good faith means honesty in fact under K.S.A. 84-1-201(19). For seller nondelivery or repudiation, the proper measure of buyer's damages is the difference between the contract price and the market price at the time the buyer learned of the breach, consistent with K.S.A. 84-2-713. Appellate review of evidentiary complaints requires a timely objection to admitted evidence and a proffer of excluded evidence.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lena Ortiz, a grain merchant in Wichita, contracts to buy Milo Jensen’s sorghum crop from his farm near Dodge City at a fixed price. The written agreement states that if Lena fails to pay for delivered grain at the time of delivery, Milo may cancel the rest of the contract and sell the remaining grain elsewhere. After two deliveries, Milo says nothing about payment, then cancels three days later when market prices have jumped.

Under the majority rule, which is the strongest analysis of Milo’s cancellation?

Explanation. The majority held that when a termination clause is triggered only by an alleged failure to perform a contract term, exercising that clause is an inseparable incident of enforcing the contract’s substantive provisions. Therefore, the UCC obligation of good faith applies. The court rejected the argument that termination is categorically outside performance or enforcement. (Derived from Baker v. Ratzlaff (n.d.).)