Propane Indus., Inc. v. Gen. Motors Corp. - 429 F. Supp. 214 (W.D. Mo. 1977)

Rule:

A "requirements" contract is generally defined as a contract in which the seller promises to supply all the specific goods or services which the buyer may need during a certain period at an agreed price in exchange for the promise of the buyer to obtain his required goods or services exclusively from the seller. Although the buyer does not agree to purchase any specific amount, the requisite mutuality and consideration for a valid contract is found in the legal detriment incurred by the buyer in relinquishing his right to purchase from all others except from the seller.

Facts:

Defendant General Motors Corporation, through its purchasing agent E.M. Ironsmith, entered into a contract with plaintiff Propane Industrial, Inc., wherein plaintiff would supply propane to the defendant’s Fairfax plant at a price of $0.17 per gallon. Purchase Order No. KC-33109 was issued, outlining the terms of the agreement. Defendant also executed similar purchase order with other companies supplying propane gas. Before any releases against the purchase order had been issued by the defendant, plaintiff’s president advised that plaintiff would be unable to fulfill the contract due to shortages of all fuels. Defendant was further advised that under a proposed mandatory allocation program concerning propane being considered by the federal government, defendant was a non-priority user. Subsequently, defendant filed a request with the Office of Oil and Gas – Petroleum Division of the United States Department of the Interior for an order providing additional amounts of propane to the Fairfax plant; the request was granted and plaintiff was directed to furnish, on financial terms acceptable to both parties 171,000 gallons of propane to defendant. Following delivery, plaintiff, by invoice, charged defendant $0.4048 per gallon for the 75,572 gallons delivered. The per gallon price was based on a weighted cost of the propane to plaintiff of $0.35325 per gallon, the cost of transportation from Kearney, Missouri to Fairfax, Kansas of $0.0062 per gallon, a profit of $0.04535 per gallon, and taxes. Defendant paid plaintiff for the aforementioned delivery at the rate of $0.17 per gallon on the grounds that the purchase price of the propane was governed by previous purchase order. The difference between the amount charged by plaintiff and the amount paid by defendant is $18,276.62. Plaintiff instituted the present complaint. In its answer, defendant alleged that the transaction should be governed by Purchase Order No. KC-33109, a valid, binding, and enforceable “requirements contract.”

Issue:

1. Was Purchase Order No. KC-33109 a valid, binding, and enforceable “requirements contract” that governed the transaction between the plaintiff and the defendant?
2. Should defendant be held liable for the difference between the amount charged by plaintiff and the amount paid by the defendant?

Answer:

1) No. 2) Yes.

Conclusion:

The court noted that an essential element of the valid requirements contract was the promise of the buyer to purchase exclusively from the seller. However, an express promise by the buyer to purchase exclusively from the seller was not always required. In construing a contract in which only the seller has agreed to sell, a court may find an implied reciprocal promise on the part of the buyer to purchase exclusively from the seller, at least when it was apparent that a binding contract was intended. In the case at bar, the purchase order did not contain an express promise by defendant to purchase exclusively from plaintiff. In the absence of such a promise, purchase order no. KC-33109 lacked the mutuality of obligations and consideration required for a binding requirements contract because defendant gave no consideration and incurred no legal detriment in exchange for the promise of plaintiff. The purchase order constituted merely an offer or invitation for orders which could be revoked by plaintiff at any time prior to acceptance by receipt of an order for a specific amount from defendant. Anent the second issue, the court noted that plaintiff and defendant had not discussed the price of the propane delivered by plaintiff prior to delivery. Because both parties clearly intended to conclude a contract for sale of the propane, the price should be "a reasonable price at the time for delivery." Defendant did not contend that the price charged by plaintiff was unreasonable. Accordingly, judgment was entered in favor of plaintiff for $18,276.62, plus statutory interest.