Sales and Leases | 175
Example : An oil producer contracted to sell fuel to a power plant over time at fixed prices. At the time, there were very few refineries capable of refining crude oil into a fuel suitable for power plants. Shortly after contracting, various state governments shut down several oil refineries, deeming them nuisances. The precious few remaining refineries suddenly had vastly greater demand for refining than they had the capacity to handle, resulting in more than a sixfold increase in the cost of the fuel. Here, a court could find that this massive, unforeseen, and unforeseeable cost increase rendered the seller’s performance impracticable. [ Cf. Moyer v. City of Little Falls , 510 N.Y.S.2d 813 (N.Y. Sup. Ct. 1986) (applying Article 2 by analogy to a service contract).] b. Sole-Source Supply Contracts and Objective Impracticability As discussed above, to excuse a seller under § 2-615 for failure of a source of supply (including crops), courts often (though not infallibly) require that (1) the contract itself designates one source as the sole source of supply, (2) the source fails, (3) the cause of the failure was unforeseeable at contracting, and (4) the seller took all due measures to avert the failure. Obviously, not all these elements go to the foreseeability of the contingency. Rather, the first—designating a sole source—goes to impracticability of performance (as does the second, the failure of the source). After all, what invites excuse under § 2-615 is impracticability of performance asagreed . Thus, if the sole agreed source fails, performance asagreed becomes impracticable (indeed, impossible). [ See Failure of Seller’s Supply Source, supra ; Clark v. Wallace County Co-op Equity Exchange , 986 P.2d 391 (Kan. App. Ct. 1999) (discussing Colley v. Bi-State, Inc. , 586 P.2d 908 (Wa. App. Ct. 1978).] Example : A bottle distributor contracted to sell a specified quantity of bottles to a winemaker. The contract expressly designated a specific plant as the sole source of bottles. Sometime later, the plant’s owner filed for chapter 11 bankruptcy and, as part of the bankruptcy reorganization, sold the plant to a third party who converted the plant to a use other than manufacturing bottles. The bankruptcy and resulting sale of the plant were both unforeseeable at the time of contracting. Here, the sale of the plant was a contingency whose nonoccurrence was a basic assumption of the contract. Neither party could have foreseen these events, which eliminated the sole contractual source of supply, making the agreed performance impossible. There was nothing the distributor could have done to avert these events. [ Adapted from Encore Glass, Inc. v. Anchor Glass Container Corp. (In re Anchor Glass Container Corp.) , 345 B.R. 765 (M.D. Fla. 2006).]
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