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Eastern Air Lines, Inc. v. Gulf Oil Corp.
United States District Court for the Southern District of Florida
415 F.Sup 429 (1975)
Gulf Oil Corp. (Gulf) (defendant) executed a contract with Eastern Airlines (Eastern) (plaintiff) under which it was to provide jet fuel to Eastern. Gulf drafted the contract and provided that payment be calculated according to a price escalation provision tied to postings in Platt’s Oilgram Crude Oil Supplement. During the period of energy crises in 1973 and 1974, Gulf repudiated its contract with Eastern. In defending against an action for breach of contract, Gulf alleged that its performance under the contract had become commercially impracticable for two reasons: (1) the price escalation provision that tied payment to Platt’s no longer represented the intent of the parties because of a two-tier pricing model imposed by the government, and (2) the worldwide oil shortage caused substantial increases in crude oil prices, and there was no corresponding increase in the escalation clause. The record at trial, however, showed that Gulf’s profits went up proportionally to the cost of foreign oil in the 1973-1974 period, and in fact, Gulf’s 1974 profits exceeded 1973 profits. Nor did Gulf’s evidence of increased costs demonstrate hardship since the costs it proved were related to transfer pricing–the costs associated with intra-company costs of moving goods from one segment of the corporation to another. The record also showed that Gulf executives were in close contact with government policy makers preceding imposition of the new pricing policies.
Rule of Law
Holding and Reasoning (King, J.)
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