– Eastern is trying to enforce there standing contract.
– Eastern and Gulf have been in a longstanding relationship between the supplying of fuel for the aviation company.
– Eastern responded that Gulf had breached its contract and that requesting preliminary and permanent mandatory injunctions requiring gulf to perform the contract in accordance with its terms.
– Gulf answered by saying that the contract was void for want of mutuality and was commercially impracticable.
– Contract was formed from older contracts and drafted in June, 1972 (expire in 1977).
o Prices should reflect changes in prices of the raw material from which jet fuel is processed. Directly proportional of crude oil costs per barrel to jet fuel costs per gallon (chose west Texas sour as benchmark).
o Both parties viewed this, on the outset, very favorable.
o In 1973, Eastern paid more, because west sour prices went up.
o Eastern had been paying “old prices” for oil under the two tier system from West Sour.
Gulf says that it lacks mutuality of obligation and it renders Gulf to the subject to Eastern’s whims with respect to the volume of jet fuel Gulf would be required to deliver.
Gulf MUST make efforts to enforce Eastern’s reasonable GOOD FAITH demands at specific locations….This is the construction the companies have been using for many years….
– United States district court, southern district of Florida
– Is this contract not binding for lack of mutuality of obligation and lack of good faith?
– No, the contract is binding.
– Requirement contracts MUST be binding where the purchaser had an operating business.
– A shut-down of business to merely curtail losses is not allowed…It must be in good faith in order to honor the contract’s rules.
– Normal expansion, under good faith is also permissible.
– The courts can determine lack of mutuality and indefiniteness in regards to objective evidence of the volume of goods required to operate a specific business
– It just HAS to be performed in good faith…the requirements cannot be superfluous or un-substantiated….They must be backed up by objective, good faith examples.
– Court ruled that this is a binding and enforceable requirement contract.
– Gulf cannot pick and choose arbitrarily when to honor a requirement contract…What about when the prices rose, and Eastern respected the requirement contract???
– Damages are Specific performance…It is unique, but Eastern needs the fuel to operate its business, not the money….