Eastern Air Lines, Inc. v. Gulf Oil Corp.

United States District Court for the Southern District of Florida · 1975 · Contracts

Contractsrequirements contractscommercial impracticabilityspecific performanceUCCrequirements contractmutualityindefiniteness

Facts

Eastern and Gulf executed a 1972 aviation fuel agreement, using Gulf's standard form, under which Gulf would supply Eastern's fuel requirements at specified cities through January 31, 1977. The contract tied price escalation to specified West Texas Sour crude postings as listed in Platts Oilgram. After the 1973 energy crisis and two-tier price regulation, Gulf claimed the pricing mechanism no longer reflected the parties' intent and demanded higher prices or it would stop deliveries. Eastern continued paying the contract price and sought to compel Gulf's performance.

Issue

Whether the aviation fuel agreement was an enforceable requirements contract, whether Eastern breached it by varying its liftings through fuel freighting, and whether Gulf was excused from performance because the contract had become commercially impracticable after changes in oil prices and regulation. The court also had to decide whether specific performance was an appropriate remedy.

Rule

Under U.C.C. § 2-306, a contract measured by the buyer's requirements is enforceable if the buyer's actual requirements are made in good faith and are not unreasonably disproportionate to any stated estimate or prior comparable requirements. Under U.C.C. § 2-615, commercial impracticability requires failure of a presupposed condition that was an underlying assumption of the contract, that failure must have been unforeseeable, and the risk must not have been allocated to the party seeking excuse; increased cost or market change alone is insufficient. Established course of performance, course of dealing, and trade usage inform whether a buyer acted in good faith.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Prairie Star Delivery, a regional shipping company based in Omaha, signs a 4-year contract with Red Mesa Fuels, under which Red Mesa will supply Prairie Star's diesel requirements for its Nebraska terminals. The contract states no fixed quantity, but both companies have worked under similar 'requirements' language for years and have exchanged periodic forecasts during performance.

If Red Mesa later argues the agreement is unenforceable because quantity was indefinite and Prairie Star was not bound to buy any set amount, what is the strongest response?

Explanation. Under the majority opinion, a requirements contract is valid under U.C.C. § 2-306 when quantity is measured by the buyer's actual requirements occurring in good faith. The court rejected attacks based on indefiniteness and lack of mutuality, especially where the parties' course of performance treated the contract as binding. A fixed quantity for each location is not required.