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.
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Due to high gasoline prices, American Bakeries Company (ABC) considered converting its fleet of more than three thousand 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. |
Explanation
Based on the provisions of the Uniform Commercial Code, the quantity demanded and sold has to be reasonably proportionate. The requirements placed by Company AB have given an approximate number of units for conversion.
The clause of the contract states the approximate value, adjustable at the discretion of Company AB. But Company AB has unreasonably reduced the requirements to zero, which is not as per the privileges of requirements contract. So, Company AB is going to be held liable and the decision is going to be in the favor of Company E.
Verified Answer
The decision is going to be given in the favor of Company E on the basis of the good faith clause. The parties involved in the contract have to perform their duty based on the terms of the contract.
Company AB has performed its duty as per the contract and has not displayed honesty in disclosing the reason for the rejection of the contract.
Though the number of conversions depends on Company AB's decision, it is unreasonably disproportionate to reduce the number to zero and withdraw from the contract.
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