Requirements Contracts: What Happens When Prices Skyrocket?
What is the most likely outcome when a party refuses to deliver additional goods in a requirements contract?
a. Lode wins; requirements contracts are not enforceable because they do not contain a quantity.
b. Ajax wins; requirements contracts are enforceable.
c. Lode wins; even if requirements contracts are enforceable, the parties must act in "good faith," and Ajax is acting in bad faith.
d. Ajax wins; they are acting in "good faith," and this was a risk that Lode assumed.
Answer:
Final answer: Ajax wins; requirements contracts are enforceable, and Lode's refusal to deliver additional silver could be a breach of contract.
The most likely outcome in this scenario is that Ajax wins; requirements contracts are enforceable. A requirements contract is a type of contract where the buyer agrees to purchase all their requirements of a specific product from the seller. In this case, Ajax entered into a requirements contract with Lode to purchase all its requirements of silver needed for photo finishing. Although Lode only produces about 15,000 ounces of silver per year, Ajax's average annual usage is 10,000 ounces.
When the price of silver suddenly skyrockets, Ajax needs to buy additional silver from Lode. This falls within the scope of the requirements contract. Therefore, Lode refusing to deliver the additional silver would likely be considered a breach of contract, and Ajax would have a reasonable chance at winning the lawsuit.