GE Marquette Medical Systems (GE) contracted with Biomedical Systems Corp. to manufacture a new medical instrument based on technology owned by Biomedical. The contract required GE to obtain clearance from the Food and Drug Administration (the federal regulatory agency that covers such medical devices) within 90 days in order to move ahead on the project. After this contract was signed, GE determined that obtaining this clearance was not a prudent path to reach its ultimate objective of having the product approved for selling to the public. Rather than seek the clearance required by the Biomedical contract, GE decided to pursue a different strategy with the FDA that took several years to complete. When Biomedical sued GE for breach of contract, GE defended on the basis that the clearance provision in the contract was a violation of FDA procedure and, thus, the term was illegal and the contract was void.

CASE QUESTIONS

1. Can a party make a unilateral judgment as to illegality on a term of the contract when there is no affirmative finding from a regulatory authority?

2. If GE had gone ahead with the clearance process and the FDA had told GE that it was not the proper procedure, would the contract be void for illegality?