McMichael v. Price
58 P.2d 549 (1936)
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Rule of Law:
A contract where one party agrees to sell all of a product that the other party can sell, and the second party agrees to buy all of that product it can sell exclusively from the first party, does not lack mutuality of obligation and is an enforceable contract.
Facts:
- Harley T. Price, doing business as Sooner Sand Company, was engaged in the business of selling and shipping sand.
- W. M. McMichael owned a plot of land containing sand.
- On February 25, 1929, Price and McMichael entered into a written 10-year contract.
- The contract stipulated that McMichael would furnish all the sand that Price could sell for shipment outside Tulsa, and Price would purchase and accept all the sand he could sell exclusively from McMichael.
- The price was fixed at 60% of the current market price at the destination, with payments to be made monthly.
- Beginning about five months after the contract was signed, McMichael periodically failed to furnish the sand Price had sold.
- On or about November 15, 1929, McMichael expressly repudiated the contract, stating he would no longer be bound by its terms.
Procedural Posture:
- Harley T. Price sued W. M. McMichael in the district court of Tulsa county for breach of contract.
- McMichael filed a counterclaim alleging Price owed him for sand already delivered.
- The case was tried to a jury, which found in favor of Price and awarded him $7,512.81 in damages.
- The trial court ordered a remittitur of $2,500, which Price accepted.
- The trial court entered a final judgment in favor of Price for $5,012.51.
- McMichael, the defendant, appealed the trial court's judgment to the Oklahoma Supreme Court.
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Issue:
Does a contract in which a seller agrees to furnish all the sand a buyer can sell, and the buyer agrees to purchase all the sand they can sell from that seller, lack the mutuality of obligation required to be enforceable?
Opinions:
Majority - Osborn, V. C. J.
No, the contract does not lack the mutuality of obligation required to be enforceable. Where a buyer agrees to purchase all of a product they can sell exclusively from one seller, the agreement is binding because the buyer incurs a legal detriment by giving up the right to buy from any other party. The court reasons that while a contract must have mutual obligations to be binding, such mutuality can be implied from the terms. Here, Price agreed 'to purchase and accept from second party all of the sand... which the said first party can sell.' This created an implied obligation for Price to use reasonable and good faith efforts to sell sand, and a direct obligation to purchase any sand he did sell exclusively from McMichael. This exclusivity is a sufficient detriment to Price to serve as consideration for McMichael's promise to sell. The court rejects the argument that Price had a 'free way out' simply by choosing not to sell sand, as this would violate his implied duty of good faith. The fact that Price did not have a long-established business is immaterial, as the parties contracted with the knowledge of his experience and anticipated he would sell a substantial quantity.
Analysis:
This decision solidifies the enforceability of requirements-style contracts, even when the quantity is not fixed but is instead measured by a party's needs or, in this case, its sales. It establishes that the necessary mutuality of obligation can be found in the implied duty of good faith and the legal detriment incurred by the buyer's promise of exclusivity. This precedent makes it more difficult for a party to escape what has become an unfavorable contract by claiming it was illusory from the start, thereby promoting commercial stability in agreements where quantities are inherently uncertain. The ruling emphasizes a judicial preference for construing contracts as mutually binding whenever the language allows, rather than voiding them on technical grounds.
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