Brief Fact Summary. Kaiser-Francis Oil Co. (Plaintiff) sought to enforce the provisions of two similar gas purchase contracts against Producer’s Gas Co. (Defendant). Defendant appeals from judgment of the district court granting summary judgment of the issue of liability in favor of the Plaintiff.
Synopsis of Rule of Law. A force majeure event does not include a decline in demand or an inability to sell gas at or above the contract price.
Issue. Whether the Defendant is liable under the contract?
Held. Yes. Judgment affirmed.
Neither a decline in demand or inability to sell gas at or above the contract price constitutes a majeure event, which would provide relief from the take-or-pay obligations under the contract. If the force majeure provision extended to lack of demand for gas and provided relief from the take-or-pay obligation, Defendant could be expected to take only when the demand for gas resulting in a resale price above the contract price. Thus, Plaintiff would not be able to sell gas during a drop in demand and would not have any ability to sell in other markets.
The purpose of a take-or-pay provision is to apportion the risks of gas production and sales between the buyer and seller. Seller has risk of production and to compensate for that the buyer agrees to tae a minimum quantity of gas. The buyer bears the risk of market demand.
Discussion. A take-or-pay provision states that a seller shall sell and deliver and buyer shall purchase and receive from seller for available but not taken quantity. Force majeure includes acts of god, strikes, lockouts, industrial disputes, civil disturbances, arrests, wars, riots, fires, explosions, breaker or accident to machinery, freezing of wells, inability to obtain interests in realty, making of repairs, and partial or entire failure of gas supply or demand over which neither seller nor buyer have control or any other cause.