Empire Gas Corporation v. American Bakeries Company

840 F.2d 1333, 1988 WL 14459
CourtCourt of Appeals for the Seventh Circuit
DecidedMay 12, 1988
Docket87-1411
StatusPublished
Cited by71 cases

This text of 840 F.2d 1333 (Empire Gas Corporation v. American Bakeries Company) is published on Counsel Stack Legal Research, covering Court of Appeals for the Seventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Empire Gas Corporation v. American Bakeries Company, 840 F.2d 1333, 1988 WL 14459 (7th Cir. 1988).

Opinions

POSNER, Circuit Judge.

This appeal in a diversity contract case presents a fundamental question — surprisingly little discussed by either courts or commentators — in the law of requirements contracts. Is such a contract essentially a buyer's option, entitling him to purchase all he needs of the good in question on the terms set forth in the contract, but leaving him free to purchase none if he wishes [1335]*1335provided that he does not purchase the good from anyone else and is not acting out of ill will toward the seller?

Empire Gas Corporation is a retail distributor of liquefied petroleum gas, better known as “propane.” It also sells converters that enable gasoline-powered motor vehicles to operate on propane. The sharp rise in gasoline prices in 1979 and 1980 made American Bakeries Company, which operated a fleet of more than 3,000 motor vehicles to serve its processing plants and bakeries, interested in the possibility of converting its fleet to propane, which was now one-third to one-half less expensive than gasoline. Discussions between the companies resulted in an agreement in principle. Empire Gas sent American Bakeries a draft of its standard “Guaranteed Fuel Supply Contract,” which would have required American Bakeries to install a minimum number of conversion units each month and to buy all the propane for the converted vehicles from Empire Gas for eight years. American Bakeries rejected the contract and Empire Gas prepared a new one, which was executed on April 17, 1980, and which was “for approximately three thousand (3,000) [conversion] units, more or less depending upon requirements of Buyer, consisting of Fuel Tank, Fuel Lock Off Switch, Converter & appropriate Carburetor & Small Farts Kit,” at a price of $750 per unit. American Bakeries agreed “to purchase propane motor fuel solely from EMPIRE GAS CORPORATION at all locations where EMPIRE GAS has supplied carburetion and dispensing equipment as long as EMPIRE GAS CORPORATION remains in a reasonably competitive price posture with other major suppliers.” The contract was to last for four years.

American Bakeries never ordered any equipment or propane from Empire Gas. Apparently within days after the signing of the contract American Bakeries decided not to convert its fleet to propane. No reason has been given for the decision.

Empire Gas brought suit against American Bakeries for breach of contract and won a jury verdict for $3,254,963, representing lost profits on 2,242 conversion units (the jury’s estimate of American Bakeries’ requirements) and on the propane fuel that the converted vehicles would have consumed during the contract period. The judge added $581,916 in prejudgment interest.

American Bakeries’ first argument is that it was entitled to a directed verdict because the evidence showed that Empire Gas could not possibly have tendered conforming goods. Shortly before signing the contract with American Bakeries, Empire Gas had signed a contract to buy a Dutch-made conversion unit, the Bé & Bé, and it brought samples of the unit to its negotiating sessions with American Bakeries and gave American Bakeries literature describing the unit. This was the only unit the parties discussed. It was a flop, and eventually Empire Gas asked the U.S. Customs Service to reclassify it as either waste or scrap. American Bakeries argues that the contract it signed with Empire Gas was a contract to purchase the Bé & Bé unit, and hence that Empire Gas could not have supplied conforming goods even if American Bakeries had carried out its alleged contractual commitments in full.

American Bakeries relies on sections 2-313(l)(b) and (c) of the Uniform Commercial Code (adopted in Illinois — whose law, the parties agree, governs the substantive issues in this case — as Ill.Rev.Stat. ch. 26, 11112-313(l)(b), (c)). The former provides that “any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description,” the latter that “any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.” As the clause (identical in both provisions) that we have italicized suggests— though none too clearly, as White & Summers, Handbook of the Law Under the Uniform Commercial Code 332-35 (2d ed. 1980), points out — the description or sample creates an obligation of conforming tender only if the parties intended to contract with reference to the specific description or sam-[1336]*1336pie. It thus is necessary to determine whether the Bé & Bé was the thing the parties intended to contract for or was merely descriptive, illustrative, or suggestive. See UCC § 2-313, comment 6; Hawkland UCC Series § 2-313:06 (Art. 2-p. 304) (1987). Ordinarily, and here, which it was is a jury question. See Alan Wood Steel Co. v. Capital Equipment Enterprises, Inc., 39 Ill.App.3d 48, 56-57, 349 N.E.2d 627, 632-33 (1976).

The contract does not mention the Bé & Bé unit, as American Bakeries could have demanded that it do; and as the contract contains a standard parol-evidence clause (“This Agreement comprises the entire Agreement, and there are no agreements, understandings, conditions, warranties or representation[s], oral or written, express or implied, concerning the subject matter or in consideration hereof which are not merged herein”), the discussions between the parties concerning the Bé & Bé unit cannot be used to alter the meaning of the contract. Anyway it is unlikely that American Bakeries cared what the brand was. What did it know about conversion units? Empire Gas was the expert on propane technology; all American Bakeries would have cared about was that Empire Gas supply a unit that worked. Empire Gas thought at the time that this would be the Bé & Bé unit, but it later changed its mind. Empire Gas does not manufacture conversion equipment, but supplies it essentially as an accommodation to the customers for its propane, the major part of its business. (The lion’s share of the damages awarded by the jury was for lost profits on the sale of propane.) It would have been ridiculous for Empire Gas to sacrifice the contract’s major objective by supplying unusable conversion equipment; no conversion, no sales of propane. Knowing this, American Bakeries presumably was content to let Empire Gas decide what conversion unit to supply. So at least a reasonable jury could conclude. It could also conclude that Empire Gas, which had an extensive inventory of conversion equipment manufactured by different companies, could and would have found satisfactory equipment to supply American Bakeries.

The heart of this case is the instruction concerning American Bakeries’ obligation under the contract. If there were no legal category of “requirements” contracts and no provision of the Uniform Commercial Code governing such contracts, a strong argument could be made that American Bakeries agreed to buy 3,000 conversion units or slightly more or slightly less, depending on its actual needs, and hence that it broke the contract by taking none. This is not only a semantically permissible reading of the contract but one supported by the discussions that the parties had before the contract was signed (and these discussions are admissible to explain though not to change the parties’ undertakings), in which American Bakeries assured Empire Gas that it was planning to convert its entire fleet.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Davidson Oil Company v. City of Albuquerque
108 F.4th 1226 (Tenth Circuit, 2024)
in Re: Enterprise Crude Oil, LLC
Court of Appeals of Texas, 2018
Blitz Telecom Consulting, LLC v. Peerless Network, Inc.
212 F. Supp. 3d 1232 (M.D. Florida, 2016)
Keyes Helium Company v. Regency Gas Services, L.P.
393 S.W.3d 858 (Court of Appeals of Texas, 2012)
BRC Rubber & Plastics, Inc. v. Continental Carbon Co.
876 F. Supp. 2d 1042 (N.D. Indiana, 2012)
Chicago United Industries, Ltd. v. City of Chicago
669 F.3d 847 (Seventh Circuit, 2012)
CHICAGO UNITED INDUSTRIES, LTD. v. City of Chicago
685 F. Supp. 2d 791 (N.D. Illinois, 2010)
Structural Polymer Group, Ltd. v. Zoltek Corp.
543 F.3d 987 (Eighth Circuit, 2008)
XO Communications, LLC v. Level 3 Communications, Inc.
948 A.2d 1111 (Court of Chancery of Delaware, 2007)
Wiseco, Inc. v. Johnson Controls, Inc.
155 F. App'x 815 (Sixth Circuit, 2005)
Noble Roman's, Inc. v. Pizza Boxes, Inc.
835 N.E.2d 1094 (Indiana Court of Appeals, 2005)

Cite This Page — Counsel Stack

Bluebook (online)
840 F.2d 1333, 1988 WL 14459, Counsel Stack Legal Research, https://law.counselstack.com/opinion/empire-gas-corporation-v-american-bakeries-company-ca7-1988.