Corporate & Securities Law

Obligation to Purchase = Obligation to Sell

By Ken Adams

Reader Michael Fleming informed me of US Salt, Inc. v. Broken Arrow, Inc., Civ. No. 07-1988, 2008 U.S. Dist. LEXIS 10841 (D. Minn. Feb. 11, 2008). This case serves as a reminder that a court would likely conclude that if Smith promises to purchase widgets from you, you’ve in effect also promised to supply widgets to Smith.

US Salt and Broken Arrow entered into a contract in which US Salt agreed to purchase from Broken Arrow at least 15,000 tons of salt per year. Broken Arrow supplied some nonconforming salt, then stopped supplying any. So US Salt brought various claims against Broken Arrow, including a claim of breach of contract.

With regard to the claim of breach of contract, Broken Arrow argued that the contract was unenforceable, in that it only specified the quantity of salt that US Salt must buy and not the quantity of salt that Broken Arrow must sell. The court rejected this argument:

The fact that the Salt Contract did not specifically state that Broken Arrow must sell a minimum of 15,000 tons of salt does not make the contract ambiguous or indefinite. The quantity term is clear as are the parties? obligations?US Salt agreed to purchase a minimum of 15,000 tons of salt, which means Broken Arrow agreed to sell a minimum of 15,000 tons of salt.

The court went on to grant US Salt summary judgment with respect to this claim.

If a court is likely to hold that a promise to purchase entails a promise to sell, it would seem like a good idea to make that explicit in your contracts.

Full post as published by AdamsDrafting on February 29, 2008 (boomark / email).