Vulcan Materials Company v. Atofina Chemicals, Inc.

Brief Fact Summary.

Plaintiff and Defendant entered into a contract under which Defendant would purchase its entire requirement of chloroform for its Kansas plant from Plaintiff. Defendant stopped purchasing chloroform from Plaintiff and closed its Kansas plant, but continued to manufacture and sell the same amount of its product. Plaintiff sued Defendant for breach of contract. Plaintiff moved for summary judgment.

Synopsis of Rule of Law.

Under a requirements contract, the quantity required by the buyer must be set in good faith.

Facts.

Vulcan Materials Company (Plaintiff) produced chloroform. Atofina Chemicals, Inc. (Defendant) operated a plant in Kansas where it manufactured a product containing chloroform. Plaintiff and Defendant entered into a contract under which Defendant would purchase its entire requirement of chloroform for its Kansas plant from Plaintiff. Defendant stopped purchasing chloroform from Plaintiff and closed its Kansas plant, but continued to manufacture and sell the same amount of its product. Plaintiff sued Defendant for breach of contract. Plaintiff moved for a finding on summary judgment that Defendant breached its agreement to purchase its chloroform requirements from Plaintiff.

Issue.

Whether the quantity required by the buyer must be set in good faith under a requirements contract.

Held.

Yes. Plaintiff’s motion for summary judgment is granted in part. Under a requirements contract, the quantity required by the buyer must be set in good faith.

Discussion.

Under UCC § 2-306, which has been adopted in Kansas, if a contract states that quantity is to be determined by the output of the seller or the requirements of the buyer, that quantity is the output or requirement that occurs in good faith. The comments to that section state that a party has no duty to perform if the party, in good faith, has no actual output or requirements. Under UCC § 2-103(1)(b), good faith for merchants means honesty and “the observance of reasonable commercial standards of fair dealing in the trade.” At the least, good faith requires that requirements not be reduced solely because the buyer has reassessed its advantages and disadvantages under the contract. Here, Defendant’s reduction in its requirements for chloroform was not made in good faith, but was instead based on the price of chloroform. Defendant continues to sell the same amount of its product containing chloroform as it did before it decided to reduce its requirements under the contract. Defendant has simply switched to another provider of chloroform to meet its requirements. A reorganization of the form of a business does not in itself absolve a buyer under a requirements contract.