Rehm-Zeiher Co. v. F.G. Walker Co.

Court of Appeals of Kentucky · 1913 · Contracts

Contractsmutualitylack of mutualityunilateral contractoption contractrequirements contractsindefinitenesspartial performance

Facts

In 1908 Walker agreed to sell Rehm-Zeiher specified annual quantities of whiskey for 1909 through 1912 at stated prices, but the contract also provided that if Rehm-Zeiher found for any unforeseen reason that it could not use the full amount, Walker would release it from the contract for the amount desired by Rehm-Zeiher. Rehm-Zeiher ordered and received only 786 of 2,000 cases in 1909 and 1,200 of 3,000 cases in 1910, and Walker did not demand that it take more. In 1911 whiskey prices rose; Walker delivered 1,044 cases but refused to furnish the remaining amount of the 4,000 cases listed for that year. Rehm-Zeiher's president testified that under the contract his company only had to take as much whiskey as it could sell, and if it did not need any, it did not have to take any.

Issue

Was the 1908 whiskey agreement enforceable by Rehm-Zeiher against Walker, or was it unenforceable for lack of mutuality because Rehm-Zeiher was not bound to take any definite quantity? If treated as an option, did Rehm-Zeiher bind Walker by accepting only part of the annual quantities in prior years?

Rule

A contract is unenforceable for lack of mutuality when one party is not bound to take or do anything and may perform or not perform entirely at its own discretion. An indefinite supply or requirements-type agreement may be enforceable if the quantity is tied to an ascertainable business requirement or established demand, but not where the buyer may decline performance for any reason. If such an arrangement is viewed as an option, it becomes binding only by an unconditional acceptance according to its terms; the optionee cannot accept part and reject part.

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In Columbus, Ohio, Larkin Beverage Brokers signed a four-year agreement with Blue Cedar Distilling to buy stated annual quantities of rye. The agreement also said that if Larkin found "any business reason" it could not use some or all of the yearly amount, Blue Cedar would release Larkin from that portion. After rye prices rose in year three, Larkin demanded the full yearly quantity and Blue Cedar refused.

If Larkin sues for breach, which is the strongest argument under the governing rule?

Explanation. A contract lacks mutuality when one party is not actually bound to do anything definite and may perform or not perform entirely at its own discretion. Here, the release clause lets Larkin avoid taking some or all of the goods for any "business reason," which imposes no meaningful limitation. The listed annual quantities do not save the agreement if the buyer remains free to decline them. (Derived from Rehm-Zeiher Co. v. F.G. Walker Co. (1913).)