Contracts Question
A manufacturer and a retailer enter into a written contract in which the retailer agrees to purchase the manufacturer’s products, and the manufacturer agrees to ship the products to the retailer on a monthly basis. Later, a dispute arises concerning the retailer’s rights under the contract due to an ambiguous provision in the contract.
May the buyer seek a declaratory judgment?
(A) No, because there has not been a breach of the contract.
(B) No, because the dispute concerns an ambiguous term in the contract.
(C) Yes, because a party may file an action for a declaratory judgment so that the court may resolve an actual dispute based on an ambiguity in a written contract.
(D) Yes, because a declaratory judgment may be sought to establish a party’s rights before an actual dispute arises.
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The correct answer is C. An action seeking a declaratory judgment may be instituted to seek the court’s opinion regarding the parties’ rights under the law or under an instrument, such as a contract. Essentially, the parties ask the court whether a certain action is prohibited before a contract is breached or a law is violated. The declaration may be either affirmative or negative in form and effect, and such declarations must have the force and effect of a final judgment.
A declaratory judgment is an equitable judicial decree that establishes a party’s rights with respect to an actual dispute. For example, if an ambiguity exists under a written contract and is disputed, a party may file an action for a declaratory judgment so that the court may resolve the ambiguity.
A is incorrect because a declaratory judgment is sought before a contract is breached.
B is incorrect because if an ambiguity exists under a written contract and is disputed, a party may file an action for a declaratory judgment so that the court may resolve the ambiguity.
D is incorrect because a declaratory judgment establishes a party’s rights with respect to an actual dispute.
Contracts and Sales § VIII C(3) Remedies: Equitable Remedies: Declaratory Judgment