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Keywords

contractbreach of contracttrialgood faithbad faith
contracttrialgood faith

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Simcala, Inc. v. American Coal Trade, Inc., 821 So.2d 197, 46 UCC Rep.Serv.2d 369

Facts

Simcala issued a purchase order to ACT for 17,500 tons of coal for 1998, but ultimately purchased only 7,200 tons, which was 41% of the estimated amount. Simcala suspended orders due to furnace problems and did not purchase any coal for a period. Although ACT had a surplus of coal available, Simcala did not place any orders during that time. The trial court found that Simcala's reduction in orders was not in bad faith but still ruled that the purchases were unreasonably disproportionate to the estimate.

During 1998 Simcala actually purchased only 7,200 tons of coal from ACT, representing 41% of the estimated amount.

Issue

Whether a buyer under a requirements contract can reduce its requirements to a level unreasonably disproportionate to an agreed-upon estimate while acting in good faith.

The question presented is one of first impression in Alabama: Whether § 7–2–306(1), Ala.Code 1975, permits a buyer purchasing pursuant to a requirements contract to reduce its requirements to a level unreasonably disproportionate to an agreed-upon estimate so long as it is acting in good faith.

Rule

Under § 7–2–306(1) of the Alabama Code, a buyer may not reduce its requirements to a level unreasonably disproportionate to any stated estimate, even if acting in good faith.

A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of any stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

Analysis

The court applied the rule by interpreting § 7–2–306(1) to prohibit both unreasonably disproportionate increases and decreases from the stated estimate. The trial court found that Simcala's actual purchases were unreasonably disproportionate to the estimated amount, thus constituting a breach of contract, regardless of Simcala's good faith.

The plain language of § 7–2–306(1) admits of only one interpretation—that both unreasonably disproportionate increases and reductions in estimates are forbidden.

Conclusion

The Supreme Court affirmed the trial court's judgment, concluding that Simcala breached the contract by purchasing an unreasonably disproportionate amount of coal compared to the estimate.

The judgment of the trial court is affirmed.

Who won?

American Coal Trade, Inc. prevailed in the case because the court found that Simcala's purchases were unreasonably disproportionate to the agreed estimate, constituting a breach of contract.

We affirm.

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