Sales and Leases | 93
a. Intent to Form a Contract Even Though Price Is Left Open For § 2-305 to apply, the parties must intend to form a contract with the price open. Courts often assume that the parties do so intend, unless either (1) the agreement expressly conditions formation on the price being fixed or (2) the context clearly indicates that intent. This assumption is especially strong if the parties established some mechanism to determine the price, such as leaving one party to fix the price or referring to some broadly applicable standard, such as an expert grading cotton or a market price. This assumption carries less force, however, if the contract sets the price by some standard dependent on a particular third party’s discretion without an established standard, e.g. , a trusted expert valuing a painting. Here, the parties placed some value on that person’s discretion and, hence, would perhaps prefer that there be no contract if the price is divorced from that person’s discretion. [ See U.C.C. § 2-305(4), cmt. 4 (1951); 2 Hawkland UCC Series § 2- 305:2, Westlaw (database updated June 2021).] Rule if Parties Intend Not to Be Bound Unless Price Is Fixed Again, if the parties intend that there be no contract unless the price is fixed, and the price is never fixed, there is no contract. Here, if the buyer has received any goods, she must return them. If the buyer cannot return the goods, then she must pay the seller the goods’ reasonable value, determined at the time of delivery. Similarly, the seller must return any portion of the price paid on account. [U.C.C. § 2-305(4) (1951).] b. Price for One Party to Fix The contract may leave either party to fix the price, and the party fixing the price must do so in good faith . In this context, most courts require both subjective dishonesty and objective bad faith before they will find that the price was set in bad faith. This statement is true, at least, if the party setting the price is a merchant, as is virtually always the case. Objective bad faith means the price is unreasonable in light of relevant, reasonable industry standards. The party setting the price can reliably fulfill this good-faith obligation by setting the price with reference to some objective, external standard, such as a market price, either party’s given price, price in effect, or a posted price. On the other hand, if a party sets the price discriminatorily, arbitrarily, maliciously, or capriciously, then the price is set in bad faith. [U.C.C. § 2-305(2), cmt. 3 (1951); 2 Hawkland UCC Series § 2-305:4, Westlaw (database updated June 2021); Good Faith, Good-Faith Requirement for Contract Modification, supra .]
c. Special Rule for Price to Be Fixed Other Than by Agreement
Special rules apply if (1) the contract calls for the price to be fixed other than by agreement, and (2) due to one party’s fault, the price is never fixed. Here, the other party has two options. She may either treat the contact as cancelled or fix a reasonable price
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