Eastern Air Lines, Inc. v. Gulf Oil Corp.

Facts

Eastern Air Lines bought aviation fuel from Gulf Oil for several decades. On June 27, 1972, the two companies signed a contract, written on Gulf's standard form after substantial arm's length negotiation. Under it, Gulf would supply Eastern's requirements of jet fuel at listed cities until January 31, 1977. The price moved with the price of crude oil. The contract tied it to the average posted prices of West Texas sour crude for Gulf, Shell and Pan American, as listed in Platts Oilgram Service. Both sides knew crude price increases were expected. In the fall of 1973, the government put in place “two-tier” price controls, which froze the price of “old” oil but freed “new” oil and an equal number of “released” barrels from control. An Arab embargo in October 1973 followed, and world oil prices rose sharply. Platts did not print the posted premiums for the uncontrolled oil; for West Texas Sour crude it printed only the controlled “old” oil price. On December 31, 1973, Gulf declared the contract no longer in effect. On March 8, 1974, Gulf demanded a price increase and said it would shut off Eastern's jet fuel within fifteen days. Under the court's later order, entered by agreement, Eastern paid on the basis of the controlled “old” West Texas Sour price of $5 a barrel. Gulf's profits were large in this period: some $800 million after taxes in 1973 and $1,065,000,000 in 1974.

Issues

1. Is a contract to supply a buyer's requirements of jet fuel a valid, binding contract, or is it too indefinite and lacking in mutuality of obligation?
2. Did Eastern breach the contract by fuel freighting, meaning adjusting where it loaded fuel according to price?
3. Was Gulf excused from performing as commercially impracticable under U.C.C. § 2-615 because of two-tier price controls and the rise in crude oil prices?
4. If the contract is valid and no defense succeeds, is specific performance the proper remedy?

Holding

The contract was a valid, enforceable requirements contract, and Eastern did not breach it. Gulf breached it on December 31, 1973, by declaring it no longer in effect. Gulf failed to prove commercial impracticability: it did not show real hardship, and the energy-crisis events were reasonably foreseeable. Specific performance was proper, so the preliminary injunction was made permanent.