Oglebay Norton Co. v. Armco, Inc.

Supreme Court of Ohio · Contracts

Contractsopen price termsspecific performanceintent to be boundopen price termagreement to agreeintent to be boundreasonable price

Facts

The parties entered a 1957 shipping contract containing primary and secondary mechanisms for setting the shipping rate. After 1985, the published rate used in the primary mechanism was no longer available, and the information needed for the secondary mechanism was also unavailable, so both pricing mechanisms failed. The trial court nevertheless found ample evidence that the parties intended to remain bound, including their long-standing and close business relationship and the contract's recognition of Armco's vital interest in Oglebay's fleet and Oglebay's obligation to ship up to 7.1 million gross tons of ore annually. Based on evidence of industry rates and the parties' course of dealing, the trial court set a 1986 rate of $6.25 per gross ton and retained equitable jurisdiction to require future negotiation and mediation if needed.

Issue

When a contract's agreed pricing mechanisms fail, does the contract become unenforceable, or may a court enforce it if the parties intended to be bound? If enforceable, may the court supply a reasonable price term and retain equitable jurisdiction to require negotiation and mediation for future performance where damages would be difficult to calculate?

Rule

If the parties intended to be bound by a contract, the failure of an agreed pricing mechanism does not render the contract unenforceable. In that circumstance, a court may supply a reasonable price term by reference to course of dealing, trade usage, and record evidence, and may order specific performance and exercise continuing equitable jurisdiction when long-term damages would be too speculative and the contract terms are sufficiently certain to support an appropriate order.

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

For 25 years, Redstone Bulk Transit and Lakeview Metals operated under a long-term ore-hauling agreement centered in Cleveland, Ohio. The contract set annual rates first by reference to a trade journal benchmark and second by reference to rates publicly charged by three named carriers, but the journal stopped publishing the benchmark and the carriers stopped releasing their rates; the agreement otherwise allocated vessel capacity for Lakeview's annual needs through 2035.

If Lakeview argues the contract is unenforceable because both pricing mechanisms failed, which is the strongest response under the governing rule?

Explanation. The majority rule is that failure of agreed pricing mechanisms does not itself render the contract unenforceable. The key question is factual: whether the parties intended to be bound despite that failure. Evidence such as a long-standing relationship, dedicated capacity, and the structure of the agreement can support enforcement even when the stated methods for fixing price no longer work. (Derived from Oglebay Norton Co. v. Armco, Inc. (n.d.).)