Secure Courier, Inc. has a contract with Petro Distribution Corporation that obl

Question

Secure Courier, Inc. has a contract with Petro Distribution Corporation that obligates Petro to supply Secure with all the gasoline it needs for its delivery vehicles for one year at $2.30 per gallon. A clause inserted in small print in the contract by Secure, and not noticed by Petro, states, “The buyer reserves the right to reject any shipment for any reason without liability.” For six months, Secure orders and Petro delivers under the contract without any controversy. Then, because of a war in the Middle East, the price of gasoline to Petro increases substantially. Petro tells Secure it cannot possibly fulfill their contract unless Secure agrees to pay $2.50 per gallon. Secure, in need of the gasoline, agrees in writing to modify the contract. Later that month, Secure learns it can buy gasoline at $2.40 per gallon from Refined Oil Company. Secure refuses delivery of its most recent order from Petro claiming first that the contract allows it to do so without liability and, second, that it is required to pay only $2.30 per gallon if it accepts the delivery. Discuss in detail Secure’s arguments.

Explanation / Answer

The contract clause in very small print that allows Secure to refuse any shipment delivery for any reason would be challenged by Petro as being unconscionable and therefore invalid. Although Secure would be given an opportunity to present evidence that such a clause is proper in a commercial setting, the fact that the clause is in small print, very one-sided, and grossly unfair if enforced would allow a court to declare the clause illegal (or at least limit its application) while still enforcing the balance of the requirements contract. Some courts, however, would not permit the argument of unconscionability to enter into this case because the contract is between two businesses with equal bargaining power. Secure’s second contention is incorrect. Under the UCC, any agreement to modify an existing contracts binding without consideration, providing the modification was sought in good faith and meets the requirements of the Statute of Frauds. In this case, Secure agreed in writing to the change in price, which was induced through no fault of Petro by a market price increase dictated by war in the Middle East. Thus, Secure is obligated to accept delivery and pay the higher price

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