Sales and Leases | 96
Whether Requirements or Output Is Unreasonably Disproportionate to a Stated Estimate or Normal or Comparable Requirements or Output If there is a stated estimate, or if there are normal or otherwise comparable prior outputs or requirements, then neither party may tender or demand any quantity that is unreasonably disproportionate to these measurements. This standard is distinct from the obligation of good faith, so that a party may run afoul of the standard even if she acts in good faith. Relevant factors include: the difference between the requirements or output and the stated estimate (or normal or comparable output), whether there was reason to anticipate or foresee the departure, any difference between the market price and the contract price, whether any change in market price was fortuitous, and the reason for the departure from the estimate or normal or comparable output. [U.C.C. § 2-306(1) (1951); Orange & Rockland Utilities, Inc. v. Amerada Hess Corp. , 59 A.D.2d 110 (N.Y. App. Div. 1977); 2 Hawkland UCC Series § 2-306:2, Westlaw (database updated June 2021).] Note : It is important to distinguish an estimated quantity from a promised quantity. A promise represents a binding contractual obligation to purchase or deliver a specified quantity. An estimate, by contrast, is a mere prediction that is not, of itself, binding. [ See 2 Hawkland UCC Series § 2-306:2, Westlaw (database updated June 2021).] Example : An oil company contracted to supply an electric company’s oil requirements for years one through five at a stated price per barrel. The contract also stated an estimate for those requirements of roughly 1.5 million barrels per year. Within a few months, electricity usage in the electric company’s service area skyrocketed, and the price of oil nearly doubled. Thus, to satisfy this demand at the contract price per barrel, roughly half the market price of oil, the electric company began demanding quantities of oil that, if continued, would call for 3 million barrels per year. This quantity was double the contract estimate. On similar facts, an appellate court held that the increase was unreasonably disproportionate to the contract estimate. The electric company’s revised demands far exceeded the contract estimates, and they were not reasonably foreseeable when the parties entered the contract. [ See Orange & Rockland Utilities, Inc. v. Amerada Hess Corp. , 59 A.D.2d 110 (N.Y. App. Div. 1977).]
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