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If the buyer under a requirements contract has a legitimate business reason for eliminating its requirements, as opposed to a desire to avoid its contract, the buyer acts in good faith.
Appellant-Plaintiff Indiana-American Water Company, Inc. ("Water Company") and Appellee-Defendant Town of Seelyville, Indiana ("Town") entered into a contract under which, the Company agreed to sell to the Town such quantities of water that the Town may need. The term of the contract was twenty-five years and will expire in the year 2008. In 1967, years before the contract was executed, the Town acquired land which could be used as a wellfield to supply water. In 1997, Town announced its plan to sell bonds to finance the construction of the improvements necessary to obtain water from the wellfield. The Water Company initiated the present lawsuit seeking a declaratory judgment that Town's plan to develop its own supply of water would constitute a breach of the contract. The trial court found that the water supply contract was valid and binding but that such did not require the town to purchase all of its water from the water company and that the development of the town's own water supply did not violate the contract. The Water Company sought review of the decision.
Under the circumstances, did the trial court err in entering judgment in favor of the Town?
The court affirmed the declaratory judgment for the town. The court held that the water supply contract was a requirements contract, and hence, required all of the town's water supply needs be purchased exclusively from the water company up to the contract-specified maximum. However, the court held that the town's decision to develop the preexisting wellfield constituted a legitimate, long-term business decision and was not merely a desire to avoid the terms of the contract with the water company. The court held that the water company did not carry the burden of overcoming the negative judgment in the case by demonstrating that the evidence led unerringly to the conclusion that the town's development of the pre-existing wellfield to reduce the need to purchase water from the water company constituted bad faith.