Primary Holding
There is sufficient consideration to make a contract valid and enforceable if objective criteria rather than subjective preferences determine the purchaser's requirements. Moreover, a court can avoid duplication by limiting a damages award imposed by a jury for a requirements contract for lost profits based on two products.
Facts
Zoltek agreed with Structural Polymer Group and Structural Polymer Systems (SP) that it would make and sell to SP all of SP's requirements between November 6, 2000 and December 31, 2010 with regard to Large Filament Count Carbon Fibers as defined by Panex 33 specifications at the current market price. SP's consideration consisted of a promise to get its total requirements for suitable quality in its reasonable opinion from Zoltek, which would not be increased by more than one million pounds from one year to the next. Zoltek stopped producing Panex 33 carbon fiber products in April 2002 and started making Panex 35 instead. SP ordered and received about 550,000 pounds of Panex 35 in 2004, after not having received any Panex 33 or 35 in 2003.
Zoltek failed to supply Panex 35 as ordered by SP in 2005 and 2006, which led to a breach of contract claim for lost profits through December 31, 2006 and future lost profits through the end of 2010. SP's damages expert made alternative lost profit calculations because it was unclear whether SP would be awarded damages for both Panex 33 and Panex 35. If the award were based on Panex 35, the damages would amount to $21.1 million, while they would amount to about $14.9 million if they were based on Panex 33. SP then argued that the contract had been modified to substitute Panex 35 for Panex 33. It received damages for lost profits for both Panex 33 and Panex 35, but it did not receive any damages for future lost profits.
On the grounds that the Panex 33 component of the award was duplicative, the trial court vacated that award and gave SP only the Panex 35 component. Zoltek's motions for a new trial or judgment as a matter of law were denied. It argued on appeal that the trial court should have granted one of these motions because it did not allow it to argue to the jury that the agreement was void for lack of mutuality of obligation. SP also cross-appealed on the grounds that it should have received the Panex 33 component of the damages award.
Opinions
Majority
- Steven M. Colloton (Author)
State law implies a duty of good faith with regard to requirements contracts that makes the recipient's obligations under them non-illusory. If SP had failed to order anything from Zoltek during the course of the agreement, Zoltek could have brought a breach of contract claim under the theory that SP had acted in bad faith. SP's obligation also was not illusory because of the price protection clause under the contract, which gave Zoltek a right of first refusal such that SP was required to purchase from Zoltek if it matched the price of a third-party seller. Contracting for the purchase of only large-tow rather than small-tow fiber, even if they are interchangeable, does not render the mutuality of obligation illusory. Purchasing an interchangeable product in bad faith from a third party would have constituted a breach, but this did not happen. Consideration was adequate even though SP could have purchased small-tow fiber from a different seller.
The quantities provided by this requirements contract did not relate to both Panex 33 and Panex 35 but to large-tow carbon fiber more generally. It was entitled to the amount that it received of either fiber, but not of both. The jury thus erred in awarding damages on the basis of a situation in which SP should have received both types of fiber simultaneously, and the lower court properly struck the lesser award as duplicative.
Case Commentary
Although this issue was not central, it is worth noting that the breaching party could not have raised the consideration argument at the appellate stage anyway because it failed to raise it as an affirmative defense at the trial level.
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