McMichael v. Price

Supreme Court of Oklahoma · 1936 · Contracts

ContractsMutualityRequirements contractsBreach of contractWaiverMitigation of damagesmutuality of obligationrequirements contract

Facts

The parties entered a ten-year contract under which defendant agreed to furnish all the sand plaintiff could sell for shipment outside Tulsa, and plaintiff agreed to purchase and accept from defendant all the sand he could sell, at a price fixed by the contract. Plaintiff alleged that defendant failed to furnish ordered sand and in November 1929 expressly repudiated the agreement. Defendant admitted the contract but claimed plaintiff had breached first by failing to make monthly payments and that he therefore refused further shipments until the account was paid. Plaintiff replied that defendant did not keep correct accounts or furnish correct statements, and that plaintiff remained willing to settle once the true amount due could be determined.

Issue

Was the contract, under which defendant was to furnish all the sand plaintiff could sell and plaintiff was to buy all such sand from defendant, unenforceable for lack of mutuality? If the contract was enforceable, was there sufficient basis to uphold the jury's finding that defendant, rather than plaintiff, breached it, and was defendant entitled to a mitigation instruction?

Rule

Where a contract obligates a seller to supply and a buyer to purchase all goods the buyer requires or can sell in the buyer's business for a limited period, and the buyer is bound to obtain those requirements exclusively from the seller, the contract is not void for lack of mutuality even though quantity is not fixed. In construing a contract susceptible of two meanings, courts adopt the construction that gives it operation and makes the obligations mutually binding unless the language wholly negatives that construction.

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

In Wichita, Dana Holt signed a 4-year agreement with Red Mesa Grain LLC. Red Mesa promised to supply all the specialty flour Dana could sell through her bakery-distribution business in Kansas, and Dana promised to buy from Red Mesa all such flour she could sell, at a stated pricing formula. After prices rose, Dana argued the contract was unenforceable because it stated no fixed quantity.

How should a court most likely rule on Dana's mutuality argument?

Explanation. The majority held that an agreement obligating the seller to furnish and the buyer to purchase all the goods the buyer can sell or requires in the buyer's business for a limited time is not void for lack of mutuality, even though quantity is not numerically fixed. The key is the buyer's binding commitment to take all such business from that seller, which is a sufficient detriment and makes the obligations mutually binding.