Simcala, Inc. v. American Coal Trade, Inc.
821 So. 2d 197, 2001 Ala. LEXIS 411, 46 U.C.C. Rep. Serv. 2d (West) 369 (2001)
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Rule of Law:
Under Alabama's version of UCC § 2-306(1), the 'unreasonably disproportionate' quantity limitation in a requirements contract with a stated estimate applies to both significant increases and significant decreases in the buyer's demand. A buyer who in good faith demands a quantity of goods that is unreasonably less than the stated estimate has breached the contract.
Facts:
- On January 12, 1998, Simcala, Inc. issued a blanket purchase order to American Coal Trade, Inc. (ACT) for its 1998 coal requirements, estimating it would purchase 17,500 tons of 'Black Creek' coal.
- The purchase order specified that the quantity was an approximation and would be shipped as required.
- Between January and mid-May 1998, Simcala purchased approximately 6,000 tons of coal from ACT.
- Simcala then suspended its orders from mid-May until the end of June, citing furnace problems, and purchased another 1,200 tons during July and August.
- In August 1998, the specific mine from which ACT sourced the coal closed, though a surplus was available through September.
- In early October, Simcala ordered 600 tons of coal, which ACT was unable to deliver because the surplus from the closed mine had been sold.
- ACT presented evidence that it could have secured an alternative source by mid-October, but Simcala placed no further orders.
- For the entire year of 1998, Simcala purchased only 7,200 tons of coal, approximately 41% of its original estimate.
Procedural Posture:
- American Coal Trade, Inc. (ACT) sued Simcala, Inc. in an Alabama trial court for breach of contract.
- After a bench trial, the trial court entered a final judgment for ACT, awarding lost profits and interest.
- The trial court found that Simcala had acted in good faith but that its purchase of only 41% of the estimated quantity was 'unreasonably disproportionate' and therefore a breach.
- Simcala, the defendant, appealed the trial court's judgment to the Supreme Court of Alabama.
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Issue:
Does a buyer in a requirements contract breach the contract under UCC § 2-306(1) by demanding a quantity of goods that is unreasonably disproportionate less than a stated estimate, even if the reduction is made in good faith?
Opinions:
Majority - Per Curiam
Yes. A buyer breaches a requirements contract when its demand is unreasonably disproportionate less than a stated estimate, regardless of good faith. The plain language of § 7-2-306(1) states that 'no quantity unreasonably disproportionate to any stated estimate... may be... demanded,' and this language does not distinguish between increases or decreases. The court's duty is to interpret the statute as written. Official Comment 3 to the UCC supports this reading by describing the estimate as a 'center around which the parties intend the variation to occur,' which implies limits on deviation in both directions. While other jurisdictions have held otherwise, this court is not bound by their interpretations and finds the statutory text unambiguous. The buyer's separate claim that the seller breached first fails because the seller's inability to fill one small order did not 'substantially impair' the value of the entire contract; the buyer's proper remedy would have been to demand adequate assurances of performance under UCC § 2-609, which it did not do.
Dissenting - Woodall, J.
No. A buyer's good-faith reduction in its requirements should not constitute a breach of contract. The majority's rigid application of the plain-meaning rule defeats the purpose of a requirements contract, which is to provide flexibility based on actual needs, unlike a fixed-quantity contract. By penalizing a good-faith decrease, the majority's interpretation effectively transforms an 'estimate' into a mandatory minimum purchase quantity. The court should have adopted the majority rule from other jurisdictions, which holds that the 'unreasonably disproportionate' clause prevents buyers from demanding surprising increases, while good faith is the sole test for decreases. This more reasonable construction aligns with the commercial purpose of the statute.
Analysis:
This decision establishes Alabama's minority position on the interpretation of UCC § 2-306(1). By applying the 'unreasonably disproportionate' standard to decreases, the court makes stated estimates in requirements contracts significantly more binding on buyers than in most other jurisdictions. This reduces the flexibility that is the hallmark of requirements contracts, shifting risk to the buyer who may face liability for legitimate, good-faith reductions in its business needs. The ruling prioritizes a literal, textualist interpretation of the statute over the prevailing, purpose-driven approach that focuses on commercial reasonableness and the prevention of market exploitation.
