Laclede Gas Co. v. Amoco Oil Co.

United States Court of Appeals for the Eighth Circuit · 1975 · Contracts

Contractsmutualityconsiderationtermination clauserequirements contractillusory promisespecific performanceadequate remedy at law

Facts

Laclede and Amoco's predecessors entered a written agreement under which, for particular residential developments brought under the contract by supplemental letters signed by both parties, Amoco would install and operate propane storage and delivery facilities and continuously supply propane, while Laclede would install and operate distribution facilities and pay the agreed price. The agreement allowed Laclede to terminate only after the first year, only on an anniversary date, and only with 30 days' written notice; it also ended for a development when natural gas service was extended there. After disputes over propane allocation and price, Amoco sent Laclede a letter stating it was terminating the agreement because it allegedly lacked mutuality. By the time of trial, eight developments remained under the agreement.

Issue

Whether the propane supply agreement was invalid for lack of mutuality or consideration because Laclede alone had a termination right and did not expressly promise to buy all of its propane requirements from Amoco, and if the contract was valid, whether specific performance should be granted.

Rule

A contract is not void for lack of mutuality merely because one party alone has a cancellation right, so long as that right is not unrestricted; restrictions such as a fixed initial term, termination only on stated dates, and advance written notice supply sufficient legal detriment. A court may also infer a binding requirements obligation from a practical reading of the contract and related documents. Specific performance may be ordered for a personal property supply contract when the agreement is sufficiently definite, supervision is not unduly burdensome, and the legal remedy is not as certain, prompt, complete, and efficient as equitable relief.

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

Prairie Hearth Utilities in Wichita signed a five-year heating-oil supply agreement with Red Mesa Fuels. The contract lets Prairie Hearth terminate only after the first 18 months, only on a quarterly renewal date, and only by giving 45 days' written notice; Red Mesa has no comparable termination right.

If Red Mesa stops delivering and argues the contract is unenforceable for lack of mutuality because only Prairie Hearth can terminate, which is the best answer?

Explanation. The majority rule is that a bilateral contract is not invalid merely because one party alone may cancel. The key question is whether the cancellation power is unrestricted. Here, termination is limited by an initial fixed period, specified times for termination, and advance written notice, so the buyer's promise is not illusory. (Derived from Laclede Gas Co. v. Amoco Oil Co. (1975).)