Question

Lode Mines enters into a contract with Ajax Photo Labs, whereby Ajax agrees to purchase all its requirements of silver needed for photo finishing during the next year, from Lode, at $4.00 per ounce. Over the last 4 years, Ajax has used an average of 10,000 ounces of silver per year. Lode only produces about 15,000 ounces of silver per year. About 2 months into the contract, the price of silver skyrockets to $50 per ounce. Ajax immediately orders an additional 50,000 ounces from Lode. Lode refuses to deliver, and Ajax sues. What is the most likely outcome?

a. Lode wins; requirements contracts are not enforceable because they do not contain a quantity.
b. Ajax wins; requirements contracts are enforceable.
c. Lode wins; even if requirements contracts are enforceable, the parties must act in "good faith," and Ajax is acting in bad faith.
d. Ajax wins; they are acting in "good faith," and this was a risk that Lode assumed.

Answer 1

Ajax wins; requirements contracts are enforceable, and Lode's refusal to deliver additional silver could be a breach of contract.

Step-by-step explanation:

The most likely outcome in this scenario is that Ajax wins; requirements contracts are enforceable. A requirements contract is a type of contract where the buyer agrees to purchase all their requirements of a specific product from the seller. In this case, Ajax entered into a requirements contract with Lode to purchase all its requirements of silver needed for photo finishing.

Although Lode only produces about 15,000 ounces of silver per year, Ajax's average annual usage is 10,000 ounces. When the price of silver suddenly skyrockets, Ajax needs to buy additional silver from Lode. This falls within the scope of the requirements contract. Therefore, Lode refusing to deliver the additional silver would likely be considered a breach of contract, and Ajax would have a reasonable chance at winning the lawsuit.