Shaw v. Mobil Oil Corp.
535 P.2d 756 (1975)
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Rule of Law:
When contractual promises are dependent, one party's failure to perform discharges the other party's duty to perform, even if the failure is legally excused and does not constitute a breach of contract.
Facts:
- In 1972, a service station dealer and Mobil Oil Corporation entered into an integrated service station lease and a retail dealer contract.
- The lease required the dealer to pay rent of 1.4 cents per gallon of gasoline delivered, but with a guaranteed minimum of $470 per month.
- The dealer contract obligated Mobil to sell and deliver the amount of gasoline ordered by the dealer, within specified annual limits.
- In July 1973, the dealer ordered 34,000 gallons, an amount sufficient to meet the minimum rent based on the per-gallon rate.
- Citing a request from the Federal Energy Office to allocate gasoline, Mobil delivered only 25,678 gallons, which was less than the amount ordered and insufficient to generate $470 in rent on a per-gallon basis.
- Mobil subsequently demanded that the dealer pay the full $470 minimum rental for that month.
Procedural Posture:
- The plaintiff dealer initiated a declaratory judgment proceeding in the trial court to determine his rental obligations.
- The trial court found in favor of the defendant, Mobil Oil Corporation, ruling that the dealer was obligated to pay the minimum rental.
- The plaintiff dealer appealed the trial court's decision.
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Issue:
Is a service station dealer obligated to pay a minimum monthly rent when the gasoline supplier fails to deliver the amount of gasoline ordered, even if the supplier's failure to deliver is excused by compliance with a government request?
Opinions:
Majority - Denecke, J.
No. A service station dealer is not obligated to pay a minimum monthly rent when the supplier fails to deliver the amount of gasoline ordered. The court found that the lease and the retail dealer contract constituted a single, integrated agreement. The dealer's promise to pay a minimum rent was dependent on, or conditioned upon, Mobil's performance of its obligation to deliver the quantity of gasoline ordered. The parties intended that the dealer's obligation to pay a minimum rental was undertaken in reliance on Mobil's fulfillment of its delivery promise. Although Mobil's contract clause regarding government requests may have excused its failure to deliver from being a breach of contract, it does not obligate the dealer to perform its corresponding dependent promise. An excused failure to perform by one party does not justify demanding performance from the other party whose obligation was conditioned on that performance.
Analysis:
This case clarifies the distinction between an excused non-performance and the effect of that non-performance on the other party's obligations. It establishes that a force majeure or excuse clause may shield a party from liability for breach, but it does not convert the other party's dependent promise into an independent one. The decision reinforces the principle that when the consideration for a promise fails, the promise is unenforceable. This precedent is significant in commercial contracts, particularly where a lease is tied to a supply agreement, as it protects the lessee/buyer from having to pay for a benefit they did not receive, even when the lessor/supplier has a valid excuse for its failure to provide it.
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