Cabot Corp. v. AVX Corp.

Cabot Corporation (defendant) was a leading producer of tantalum, a rare metal vital to the production of tantalum capacitators made by AVX Corporation (plaintiff). Due to market volatility, Cabot and AVX almost never signed agreements committing Cabot to sell, and AVX to purchase, a specific quantity of tantalum. Instead, Cabot and AVX signed short-term letters of agreement, in which AVX estimated its upcoming demand for tantalum and Cabot named the price at which it would attempt to meet AVX’s demand. Cabot characterized these letters of intent as planning documents, but AVX thought of them as binding contracts. Eventually, however, a worldwide shortage of tantalum positioned Cabot to renounce the current letters of intent. Instead, Cabot proposed a long-term contract in which AVX would commit to purchase a specific quantity of Cabot’s tantalum over the next five years. This take-or-pay contract would provide that, even if AVX found that it needed less tantalum, AVX would still have to pay for the full contract-stipulated amount. To guarantee its supply of tantalum, AVX agreed to the deal. AVX later sued Cabot in federal court to invalidate the contract and enforce the most recent letters of intent. The federal court dismissed the case for want of diversity jurisdiction. Cabot then sued to enforce the contract in state court. An intermediate appellate court affirmed the trial court’s declaratory judgment that the contract was valid and binding. AVX appealed to the Massachusetts Supreme Judicial Court.