840 F.2d 1333 (7th Cir. 1988)
Empire Gas Corp. v.
Did American Bakeries breach its requirements contract with Empire Gas by purchasing propane from a competitor, and was Empire Gas's performance in good faith?
In contract law, a requirements contract obligates the seller to supply and the buyer to purchase all of a particular good that the buyer requires. Such contracts are governed by the principle of good faith and fair dealing, which requires that both parties act honestly and fairly in the performance and enforcement of the contract. The implied covenant of good faith ensures that neither party will do anything to destroy or injure the right of the other party to receive the benefits of the contract.
The Seventh Circuit reversed the district court's decision, ruling that American Bakeries had breached its requirements contract with Empire Gas by purchasing propane from a competitor. The court found that Empire Gas had acted in good faith in its performance of the contract and that American's actions were contrary to the obligations imposed by the requirements contract.
Empire Gas Corp. v. American Bakeries Co. is a landmark case that reinforces the principles of good faith and fair dealing in contract law. It serves as a critical reference for law students studying the enforceability of requirements contracts and the expectations that arise from such agreements. The case illustrates how courts may interpret the actions of parties in light of their contractual obligations and the implications of breaching those obligations.