United States Court of Appeals for the Seventh Circuit - 840 F.2d 1333
In the 1988 case, Empire Gas Corp. v. American Bakeries Co., the Seventh Circuit Court of Appeals decided on a dispute involving a contract for gas conversion units and propane fuel.
Empire Gas is a retail distributor of propane and converters that enable gas vehicles to run on propane. American Bakeries was thinking about converting its fleet of vehicles to propane because it was cheaper than gasoline. On April 17, 1980, American Bakeries entered into a contract with Empire Gas “for approximately three thousand (3,000) [conversion] units, more or less depending upon requirements of Buyer.” American Bakeries decided not to convert its fleet and never bought any units.
Empire Gas sued for breach of contract and won $3,254,963 for lost profits representing the 2,242 conversion units that American Bakeries likely would have required and the propane the converted vehicles would have required. American Bakeries appealed.
The defense argued that the contract was not binding in terms of quantity and price and could be renegotiated due to custom and additional terms. The main question was whether the contract was valid and enforceable, or if any of the defendant's defenses applied.
The court ruled that the contract was, indeed, valid and enforceable, and dismissed the defenses. The contract was binding and had clear, definite terms. The court also found that renegotiation was not valid as it went against the contract's terms. Moreover, the defendant had violated the principle of good faith by not providing legitimate business reasons for not ordering from the plaintiff.
This case is significant because it highlights the importance of good faith in contract law, which demands honesty and fair dealings. It also shows that courts will uphold contracts backed by sufficient writing, even without formal execution, and will not accept defenses based on inconvenience or hardship that go against the contract's terms.
The case involves a dispute over a requirements contract between Empire Gas Corporation and American Bakeries Company. American Bakeries failed to order any equipment or propane from Empire Gas, despite signing a contract agreeing to do so. Empire Gas sued for breach of contract and won a jury verdict of $3,254,963. American Bakeries argues that Empire Gas could not have provided conforming goods, as the contract was for a Dutch-made conversion unit that was eventually deemed a failure. The court found that the "unreasonably disproportionate" provision in section 2-306(1) of the Uniform Commercial Code was unnecessary as the requirement of good faith already covers it. The court's error in instructing the jury requires a new trial on liability, unless it is clear that American Bakeries acted in good faith or bad faith. A buyer's decision to switch from one product to another does not excuse it from its obligation to purchase its "consumption requirements" of the original product from the seller, even if the buyer gives no reason for the change.
The dissenting opinion agrees with the majority that the error in the instruction regarding the "unreasonably disproportionate" proviso in Illinois' Uniform Commercial Code § 2-306(1) requires a reversal and new trial. However, the fundamental problem is that there was no evidence of either good or bad faith as those terms are normally defined. The plaintiffs failed to introduce specific evidence as to bad faith, which constituted a failure to carry its burden of proof on the issue of bad faith. Therefore, a new trial is necessary unless evidence of good or bad faith is presented. The court holds that evidence of a buyer's good or bad faith is necessary to determine liability under § 2-306, and a buyer's unreasonably disproportionate reduction of requirements is not enough to determine liability. However, the practical application of this standard to the trial of this case causes disagreement. If the seller has the burden of proof on the issue of the buyer's bad faith, the case should be reversed and remanded for a new trial because Empire Gas did not bear that burden and the trial record discloses no facts ordinarily found necessary by Illinois courts to prove bad faith. If a buyer's assertion of an unreasonably disproportionate reduction in their requirements creates a bad faith presumption which may be rebutted by the buyer's proof of good faith, the case should also be reversed and remanded for a new trial because this new rebuttable presumption of bad faith was not the Illinois rule under which the trial was conducted.
LSD+ gives you access to over 50,000 case briefs, more than anyone else. Be the first to email us the website of a case brief product that offers you more case briefs and we'll give you a free year of LSD+.
Unlimited access. Read as much content as you want during your trial with no device limitations. Cancel any time during your trial and keep access for the full 14 days.
Lawyers and judges love to use big words. And Latin, for some reason.
Highlight a legal term in LSD Briefs and get an instant, plain English definition. Try highlighting contract or specific performance. No need to search or read through a list of definitions, simply highlight the words you don’t know and our LSDefine integration will instantly give you a definition to any of over 30,000 legal terms.
DeepDive allows you to explore legal cases like never before. DeepDive offers multiple levels of case summaries, which empowers you to quickly and easily find the information you need to stay on top of readings. Easily navigate through summary levels and click on any text to get more detail, all the way down to the original legal case text.
Our proprietary state-of-the-art system can instantly brief over 6,000,000 US cases. That means we can probably brief that case that your professor assigned last night when she sent you a poorly scanned pdf and told you to read every third paragraph. Or maybe she uploaded it to Canvas and didn’t really tell you to read it, but you know you probably should. Tenure does wild things to good people.
Study groups are a great way to learn and explore a case. LSD has chat rooms for each case to let you ask questions across the community and hear what other students struggled with and how they put it all together. Learn the key points of every case from other LSD+ users and share your knowledge with LSD High Points.
Don’t settle for mistakes in briefs that have been there for 10 years and never fixed. Find an issue or something missing from a brief? Down vote and we will make improvements. All of our case brief editors graduated from from T14 law schools.