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Shaw v. Mobil Oil Corp. - 272 Or. 109, 535 P.2d 756 (1975)

Rule:

A party has no obligation to perform a promise that is conditioned upon the other party's performance when the other party failed to perform even though the other party's failure to perform is excused and is not a breach of contract. An example of this situation is when the other party fails to perform its promise upon which the promisor's performance is conditioned because of the impossibility of performance

Facts:

In 1972, plaintiff Shaw, a service station lessee and operator, and defendant, Mobil Oil Corporation, the lessor and gasoline supplier of plaintiff, entered into a service station lease and a retail dealer contract. The contract required the dealer to purchase not less than 200,000 gallons of gasoline per year and Mobil to sell to the dealer the amount of gasoline ordered by the dealer. The lease required the dealer to pay as rent, 1.4 cents per gallon of gasoline delivered, but no less than the minimum amount of $470 per month. It was agreed that in order for the rent per gallon to equal the minimum rental per month, Mobil was required to deliver 33,572 gallons per month. In July 1973 the dealer ordered 34,000 gallons, but Mobil delivered only 25,678 gallons. Mobil demanded that the plaintiff dealer pay the minimum rental for July as specified in the lease. Plaintiff Shaw brought this declaratory judgment proceeding to have determined its obligation to pay the minimum rental under the circumstances stated. The trial court decided that Shaw had to pay the minimum rental. Shaw appealled, arguing that the promise to pay the minimum rental was a dependent promise, i.e., conditioned upon Mobil’s performing its obligation to deliver the quantities of gasoline ordered by Shaw.

Issue:

Was the plaintiff dealer’s promise to pay the minimum rental a dependent promise conditioned upon Mobil’s performance of its obligation to deliver the quantities of gasoline plaintiff dealer ordered?

Answer:

Yes.

Conclusion:

TheSupreme Court of Oregon held that it was apparent that Shaw, as a dealer, undertook his obligation to pay a minimum rental in reliance on Mobil’s fulfillment of its obligation to deliver the quantity of gasoline ordered. Therefore, Shaw's promise to pay was conditioned or dependent upon Mobil’s delivery of the gasoline, and when Mobil failed to deliver the gasoline ordered, Shaw was not required to pay the minimum rental. Accordingly, the Court reversed the trial court’s judgment.

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