## Facts

- Feld operated the “Crushed Toast Company” and purchased bread crumbs; Henry S. Levy & Sons, Inc. was a wholesale bread baker that manufactured bread crumbs at its Brooklyn factory.
- The parties entered a written output contract dated June 19, 1968, requiring Levy to sell and Feld to buy all bread crumbs produced at Levy’s specified factory from June 19, 1968 to June 18, 1969.
- The agreement provided for automatic one-year renewals unless either party gave at least six months’ written notice of cancellation by certified mail; no cancellation notice was given.
- Feld posted a performance bond at the outset and later provided a continuation certificate as contemplated by the contract.
- The bread crumbs were a distinct manufactured product, produced through multiple processing stages rather than as incidental byproduct.
- During the first 11 months, Levy produced and sold more than 250 tons of bread crumbs to Feld.
- On May 15, 1969, Levy stopped bread-crumb production, dismantled the bread-crumb machinery, and later repurposed the space as a computer room.
- Levy asserted the operation had become very uneconomical and indicated production would resume if the contract price increased from 6¢ to 7¢ per pound.
- Feld sued for breach, alleging Levy impermissibly ceased production without invoking the contractual cancellation mechanism.
- The trial court denied Feld’s motion for summary judgment on liability and denied Levy’s motion for summary judgment dismissing the complaint; the Appellate Division affirmed (with a dissent).
- Both parties appealed to the New York Court of Appeals.

## Issues

1. Whether the agreement was an output contract governed by U.C.C. § 2-306(1).
2. Whether an output seller has an implied obligation to continue producing during the contract term and renewal periods absent cancellation, and what “good faith” requires in deciding to curtail or cease output.
3. Whether Levy’s cessation of production was justified by good-faith economic reasons or instead constituted breach, and whether summary judgment for either party was proper.

## Decision

- The Court of Appeals affirmed the order denying summary judgment to both parties.
- The court treated the agreement as an output contract governed by U.C.C. § 2-306(1).
- The court held that output contracts contain an implied obligation to continue production in good faith during the contract term, subject to any contractual cancellation provision.
- The court held that a seller may curtail or cease output only in good faith; mere desire to improve profit or renegotiate price is not enough, while genuine hardship or losses beyond trivial levels may justify cessation.
- Because the record raised triable fact questions about Levy’s good faith in halting production (including dismantling machinery and seeking a price increase), liability could not be resolved as a matter of law.

## Legal Principles

- Under U.C.C. § 2-306(1), a quantity term measured by output means actual output as occurs in good faith, and the good-faith standard applies to decisions to reduce or stop production as well as day-to-day variations in quantity.
- In an output contract, the seller is not free to terminate performance at will; continued production is required in good faith for the contract’s duration unless properly canceled under the contract’s terms.
- Economic reasons can justify curtailment or cessation only when they reflect genuine hardship or losses more than trivial; reduced profitability or bargaining for a higher price, standing alone, does not constitute good faith.
- Where the contract provides a specific cancellation mechanism with notice, bypassing that mechanism and unilaterally ceasing production may support an inference of bad faith.
- Output and exclusive-dealing arrangements are enforceable despite open-ended quantities because mutual obligations are supplied and bounded by good-faith performance (and, where applicable, best-efforts concepts under U.C.C. § 2-306(2)).

## Conclusion

The court held that an output seller must continue producing in good faith and may stop only for bona fide economic hardship rather than simple dissatisfaction with profit; because Levy’s reasons for dismantling its bread-crumb operation presented factual disputes about good faith, summary judgment for either side was improper.


Feld v. Henry S. Levy & Sons, Inc., 37 N.Y.2d 466, 335 N.E.2d 320 (N.Y. 1975)