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Chemetron Corp. v. McLouth Steel Corp.

decided: August 28, 1975.


Appeal from the United States District Court for the Northern District of Illinois Eastern Division - No. 73 C 228 JULIUS J. HOFFMAN, Judge.

Sprecher, Tone, and Bauer, Circuit Judges.

Author: Tone

TONE, Circuit Judge.

In a trial without a jury of this diversity case governed by Michigan law, plaintiff Chemetron Corporation recovered a judgment for $871,493 as damages for the failure of defendant McLouth Steel Corporation to deliver the quantities of products called for by a supply contract. McLouth appeals. We affirm.

In 1964 the parties entered into a written contract under which Chemetron agreed to purchase from McLouth each month a minimum of 975 tons of liquid oxygen or liquid nitrogen, or both, which the contract calls collectively "liquid products," and McLouth agreed to make available to Chemetron for purchase each month at least 1950 tons of liquid products as requested by Chemetron. Provisions were included for daily deliveries and the price of the products to be delivered. The contract became effective on April 21, 1965, for a term of five years, and was automatically renewable for an additional five- year term unless one of the parties, not less than one year prior to the expiration of the fifth year of the original term, i.e., by April 21, 1969, notified the other of its desire not to renew.

Neither party gave the required notice, and the contract was therefore automatically renewed. McLouth having failed to furnish liquid products during the renewal term in the amounts called for by the contract, Chemetron brought this action, recovering damages for the period from April 1970 through October 1972 on the basis of the difference between the cost of liquid products obtained by Chemetron from sources other than McLouth for sale in the Detroit area (the relevant market where the products were resold by Chemetron), and the contract price. In addition, for the period from November 1972 through December 1973, Chemetron recovered profits lost by its inability to obtain liquid products which it could have sold in the Detroit market. See Michigan Uniform Commercial Code, M.C.L. §§ 440.2712, 440.2713, 440.2715. Damages for the period January 1974 through March 1975, which plaintiff calculated on the basis of its projections, were denied by the trial court for lack of substantiation. See 381 F. Supp. 245 (N.D. Ill. 1974).

McLouth is a steel producer and uses large amounts of liquid oxygen and nitrogen in its steel manufacturing processes. At the time the contract was entered into, it owned four operating liquid products producing plants, which had to be operated continuously for maximum efficiency, and it apparently contemplated meeting its contractual obligations with the excess products produced by these plants. McLouth encountered a great deal of mechanical difficulty in the production of the liquid products, however, with the consequence that in order to maintain a sufficient reserve supply for its own uses it instituted, allegedly with the knowledge, consent, and acquiescence of Chemetron, the policy of making available for sale only an amount of liquid products above a designated minimum in its storage tanks. The present litigation has its roots in this "tank level policy."

Several of the arguments asserted by McLouth in the District Court and ruled upon on that court's opinion are not raised here. See 381 F. Supp. at 253 et seq. We turn now to deal with those which are.


McLouth's first argument is that because Chemetron did not request specific quantities of products, damages can be neither calculated nor awarded. It was error, says McLouth, to measure damages by the difference between the quantities Chemetron needed (as distinguished from the quantities it ordered) and the quantities it actually received. McLouth further argues that since the contract was an option contract and not a requirements contract, there was no obligation to furnish any amount of product not actually requested by Chemetron.

The District Court, however, did not hold McLouth responsible for Chemetron's requirements as such, but only for the amounts which McLouth had agreed to furnish. It is true that Chemetron was obligated to request the amounts of liquid products to be delivered (at least amounts above 975 tons per month) and that under ordinary circumstances McLouth would not be obliged to make deliveries of products not ordered. One party to a contract, however, is not required to make repeated requests for performance when the other party has manifested a continuing unwillingness to meet the terms agreed upon. See Swift Canadian Co. v. Banet, 224 F.2d 36, 37 (3d Cir. 1955); Restatement of the Law of Contracts § 306. Here Chemetron made phone calls on a daily basis to see how much liquid products would be available for delivery. McLouth's contention that these calls "inquiring" of McLouth's tank level were not sufficient indications that Chemetron desired to purchase liquid products was properly rejected by the District Court in view of the fact, as the court found, that

"By making its daily telephone call, Chemetron evidenced its preparedness to order some quantity of product, but McLouth, on those days it advised Chemetron that its tanks were below the specified level, having unilaterally adopted and adhered to a policy of refusing to deliver any product on such days, excused Chemetron from the duty of tendering an order for a specific quantity of liquid product." 381 F. Supp. at 253.

In addition, the record is not altogether barren of requests for specific amounts of liquid products above what McLouth was willing to supply - if, indeed, these were even necessary, as McLouth contends - in the form of Chemetron's annual purchase orders in at least three of the years for which damages are sought, and meetings between the companies where such matters were discussed. Moreover, as the District Court observed, "there is no evidence that McLouth at any time responded to Chemetron's numerous complaints by stating that Chemetron had not 'requested' the specific quantities of product it needed, nor has McLouth contended that it would have supplied greater quantities had they been requested." 381 F. Supp. at 253 n.10.

McLouth was aware that Chemetron was entitled to purchase the guaranteed amount each month, and, by its continued refusal to honor its contract obligations, McLouth rendered it unnecessary for Chemetron to perform the futile acts of placing daily orders for products both parties knew would not be delivered. Under these circumstances, the fact that Chemetron did not specify the amount it desired each day does not preclude the ...

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