37 N.Y.2d 466, 373 N.Y.S.2d 102, 335 N.E.2d 320 (1975)
Plaintiff Feld operated the Crushed Toast Company while defendant Henry S. Levy & Sons, Inc. conducted a wholesale bread baking business.1 On June 19, 1968, the parties executed a written contract under which defendant agreed to sell and plaintiff agreed to purchase all bread crumbs produced at defendant's factory located at 115 Thames Street, Brooklyn, New York, during the period from June 19, 1968, to June 18, 1969.2 The contract provided for automatic renewal for successive one-year periods unless either party gave at least six months' notice of cancellation by certified mail. Plaintiff furnished a faithful performance bond at the outset and a continuation certificate for the renewal term beginning June 19, 1969. No notice of cancellation was ever served by either party.3
The term bread crumbs referred to a manufactured product rather than flakes from bread. Production began with stale or imperfect loaves, followed by label removal, processing through two grinders to achieve finer granulation, toasting in a drum inside an oven, and final bagging.4 Defendant sold plaintiff a substantial quantity of bread crumbs, exceeding 250 tons, prior to ceasing production.5
Defendant halted bread crumb production on or about May 15, 1969. Defendant's comptroller indicated that the oven was too large to accommodate the drum and that the operation was very uneconomical, yet no steps were taken to secure more economical equipment.6 The toasting oven was intentionally broken down, partially rebuilt, and then completely dismantled during the summer of 1969, after which the space was converted into a computer room.7 Defendant advised plaintiff on multiple occasions that it would resume production only if the contract price were raised from six cents to seven cents per pound. After dismantling the machinery, defendant sold the raw materials used in crumb production to animal food manufacturers.8
Special Term denied plaintiff's motion for summary judgment on the issue of liability and also denied defendant's cross-motion for summary judgment dismissing the complaint. The Appellate Division affirmed the order by a divided court. Both parties appealed from that affirmance to the Court of Appeals.9
Whether the agreement implied that defendant was obligated to continue to manufacture bread crumbs for the full term?10
Under N.Y. U.C.C. § 2-306(1), a term measuring quantity by the output of the seller means such actual output as may occur in good faith.11 Under N.Y. U.C.C. § 2-306(2), a lawful agreement for exclusive dealing imposes an obligation by the seller to use best efforts to supply the goods.12 Every contract imposes an obligation of good faith in its performance, and good faith cessation of production terminates further obligations, but the seller's duty to remain in production calls for scrutiny of its motives; good faith requires continued production until cancellation unless losses from continuance would be more than trivial.13
Yes. The contract between Feld and Henry S. Levy & Sons, Inc. was an output contract for all bread crumbs produced at the specified factory, automatically renewed without cancellation notice having been served by either party.14 Defendant halted production on or about May 15, 1969, dismantled the toasting oven machinery during the summer of 1969, converted the space to a computer room, and sold the raw materials to animal food manufacturers after plaintiff refused to agree to a price increase from six cents to seven cents per pound, without taking steps to obtain more economical equipment or showing that losses would be more than trivial.15
These specific facts from the established record raise intertwined questions of fact on whether defendant performed in good faith and whether it stopped manufacture of bread crumbs in good faith, which cannot be resolved on summary judgment.16
The agreement implied that defendant was obligated to continue to manufacture bread crumbs for the full term, subject to the obligation of good faith performance.17