36 Cal. App. 4th 376, 42 Cal. Rptr. 2d 286 (Cal. Ct. App. 1995)
KGM Harvesting v. Fresh Network serves as a seminal case in elucidating the obligations of parties engaged in requirements contracts under the Uniform Commercial Code (UCC).
Can a buyer under a requirements contract significantly reduce its order quantity due to market condition changes, while acting in good faith under the UCC?
Under the UCC, a requirements contract imposes a good faith obligation on the buyer to make purchases as required by its actual needs, and not to conduct itself in a manner that amounts to a 'taking advantage' of favourable contract terms beyond what is justified by its legitimate business requirements.
The court held that Fresh Network did not act within the bounds of good faith by significantly reducing its order quantities based solely on market competitiveness, which was a breach of the requirements contract.
The significance of the case lies in its assertion that the good faith requirement in requirements contracts does not permit buyers to take advantage of market changes in a manner detrimental to the supplier's reasonable expectations under the contract. It guides law students in understanding how subjective intent and objective circumstances are balanced under the UCC to uphold fair commercial practices.