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Orange & Rockland Utils., Inc. v. Amerada Hess Corp. - 59 A.D.2d 110, 397 N.Y.S.2d 814 (App. Div. 1977)

Rule:

There is a good deal of pre-code case law on the requirement of "good faith." It is well settled that a buyer in a rising market cannot use a fixed price in a requirements contract for speculation. Nor can a buyer arbitrarily and unilaterally change certain conditions prevailing at the time of the contract so as to take advantage of market conditions at the seller's expense.

Facts:

In a fuel oil supply contract executed in early December, 1969, Defendant Amerada Hess Corporation (Hess) agreed to supply the requirements of Plaintiff Orange and Rockland Utilities, Inc. (O & R) at Plaintiff's Lovett generating plant in Tompkins Cove, New York. A fixed price of $ 2.14 per barrel for No. 6 fuel oil, with a sulphur content of 1% or less, was to continue at least through September 30, 1974, with the price subject to renegotiation at that time. Estimates of the amounts required by plaintiff were included in the contract clause entitled "Quantity". Plaintiff O&R filed an action for damages as a result of an alleged breach of a requirements contract. The trial court held that Plaintiff buyer, O & R, exhibited an absence of good faith when O & R's requirements approached double the estimates stated in the contract.

Issue:

Did O & R's requirements for more than twice the estimates in the contract support the finding of an absence of good faith?

Answer:

Yes.

Conclusion:

The appellate court affirmed the determination that there was an absence of good faith on the part of the buyer, O & R because the buyer's demand for more than double its contract estimates to defendant Hess was as a matter of law "unreasonably disproportionate" to those estimates.

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