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    Due to high gasoline prices, American Bakeries Company (ABC) considered converting its fleet of over 3,000 vehicles to a much less expensive propane fuel system. After negotiations with Empire Gas Corporation (Empire), ABC signed a contract for approximately three thousand converter units, "more or less depending upon requirements of Buyer," as well as agreeing to buy all propane to be used for four years from Empire. Without giving any reasons, however, ABC never ordered any converter units or propane from Empire, having apparently decided not to convert its vehicles. Empire brought suit against ABC for $3,254,963, representing lost profits on 2,242 converter units and the propane that would have been consumed during the contract period.

    Is ABC liable? Explain.

    © BrainMass Inc. brainmass.com December 24, 2021, 4:56 pm ad1c9bdddf
    https://brainmass.com/law/contract-law/contracts-abc-liable-17457

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    Problem:

    Due to high gasoline prices, American Bakeries Company (ABC) considered converting its fleet of over 3,000 vehicles to a much less expensive propane fuel system. After negotiations with Empire Gas Corporation (Empire), ABC signed a contract for approximately three thousand converter units, "more or less depending upon requirements of Buyer," as well as agreeing to buy all propane to be used for four years from Empire. Without giving any reasons, however, ABC never ordered any converter units or propane from Empire, having apparently decided not to convert its vehicles. Empire brought suit against ABC for $3,254,963, representing lost profits on 2,242 converter units and the propane that would have been consumed during the contract period. Is ABC liable? Explain.

    Answer:

    Good Faith/Requirements Contract. Judgment for Empire affirmed. The U.C.C., which governs requirements contracts, provides that "a term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate . . . may be tendered or demanded." The Court held that the "unreasonably disproportionate" proviso should not be read literally when a buyer is demanding less, rather than more, of a stated estimate. The Court, however, held that a requirements contract was not, from a buyer's standpoint, in essence an option to purchase up to or slightly beyond a stated estimate on terms specified in the contract. For purposes of a requirements contract, the buyer's "requirements" must be more than purely subjective needs. The good faith requirement, moreover, would preclude the buyer from merely having second thoughts about the terms of the contract and desiring to get out of it. The Court concluded that American Bakeries had acted in bad faith in deciding for undisclosed reasons not to convert its fleet to propane, thereby reducing its requirements to zero.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 4:56 pm ad1c9bdddf>
    https://brainmass.com/law/contract-law/contracts-abc-liable-17457

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