Empire Gas Corp. v. American Bakeries Co. case brief

Empire Gas Corp. v. American Bakeries Co.: (682) United States Ct. App. [1988]

• Facts: Empire Gas sells propane and converters which convert gas run engines to propane. American Bakeries wanted to convert its vehicles from gas to propane, and contracts to purchase approximately 3,000 converters, more or less depending upon requirements of Buyer, and to buy propane exclusively from Empire Gas for the next 4 years assuming reasonable price is maintained. (basically the contract for huge quantities of propane over four years) American Bakeries decided it did not want to convert its fleet, and therefore did not buy any converters, and as a consequence it had no requirements of propane. Empire Gas argues that American Bakeries breached by failing to buy approximately 3,000 conversion units – seeking damages for lost profits on the conversion units and propane.
• Issue: Jury instruction at trial, Judge read UCC §2-306 to the jury without offering any interpretation. Posner says that this the wrong question to ask and it was error for the judge to invite the jury to ask that – instead should ask, Was the buyer acting in good faith in reducing his requirements to 0?
• Holding: As American Bakeries did not give any reason for its reduction to zero, Empire entitled to damages. Rational: Gets the good faith requirement directly from §2-306, the primary requirement of §2-306 is good faith, and unreasonably disproportionate is a secondary concern. Unreasonably disproportionate requirement based on idea that if the price of converters goes way up, but Empire Gas has to provide them at the original contract price, then American Bakeries could purchase large quantities at that price by increasing their requirements and then resell the converters for less than the new market price, thereby undercutting the market and putting Empire Gas out of business. interprets 2-306 “quantity un r/s disproportionate to estimate” to apply to ordering too many (question of law)
  • “good faith” = must have some valid business reason for not ordering any of product