Professor Elizabeth Trujillo Contracts: Illusory Promises
Here is a case from my Contracts course which explains the concept of Requirements Contracts. In this case, an oil embargo crisis does not excuse a party from fulfilling their agreed specific performance.
Case Name, Citation Number, Author
Eastern Air Lines, Inc. v. Gulf Oil Corp., 415 F. Supp. 429 (1975)
Plaintiff obtained a temporary injunction and sued for specific performance of the contract. Defendant argued that the contract was invalid.
–Plaintiff and Defendant had agreement for the sale of aviation fuel (spanning decades).
–In 1974 Defendant approached Plaintiff to raise the price of their agreement (OPEC raised prices during the oil embargo) or their supply would be shut off because agreement was not profitable any more.
–Plaintiff then obtained a temporary injunction and sued for specific performance of the contract.
–Defendant argued that the contract was invalid because: 1) It lacked mutuality of obligation, and 2) Plaintiff breached the contract by practicing “fuel freighting” whereby a plane bought more than it needed from the lowest price gas station, and then only “topped off” at the higher priced station. Courtesy of www.lawschoolcasebriefs.net
Is the requirements contracts binding? (Go to Notes for Definition of Requirements Contract)
Yes because a requirements contract is binding. Both parties agreed on a price and output amount of aviation fuel, which was all done in good faith.
Unprofitability alone will not excuse performance.
Defendant tried to argue that the agreement was not detailed enough and therefore there was not binding contract, but in a requirements contract you don’t have quantity specified; the binding standard is reasonableness and fair dealings.
–UCC §2-306 Output, Requirements (contracts) and Exclusive Dealings: (1) When there is no specified quantity by output of seller, the output must be done in good faith and reasonably. Don’t make contract illusory.
–Both parties assumed the risks.
Requirements Contracts are binding.
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