## Facts

- Imperial Refining Co. entered a written one-year output contract to buy all oil produced from specified wells/leases owned by Fern Oil Co.
- The same day, Imperial assigned the contract to Kanotex Refining Co., which initially connected its pipeline to Fern’s tanks as contemplated.
- Kanotex later refused to take or pay for any oil under the assigned contract.
- Fern sued Imperial (the original buyer) for breach and obtained a judgment for $18,000 plus attorney’s fees and costs.
- Imperial notified Kanotex of the suit, requested that Kanotex defend and/or satisfy any judgment, and Kanotex declined.
- Imperial paid the judgment and related fees and costs, then sued Kanotex for reimbursement (judgment amount and Imperial’s litigation expenses).
- The trial court sustained Kanotex’s demurrer (failure to state a claim; statute of limitations) and dismissed; Imperial appealed.

## Issues

1. Whether the one-year output contract to purchase all production from specified sources was enforceable (sufficient mutuality), such that duties could be imposed on an assignee.
2. Whether Imperial stated a claim that Kanotex, as assignee, assumed the contract’s obligations and must reimburse Imperial for the liability caused by nonperformance.
3. Whether Imperial’s reimbursement/indemnity claim was time-barred, and when the cause of action accrued (at Kanotex’s refusal or at Imperial’s payment of the judgment).
4. Whether Kanotex, after notice and an opportunity to defend the underlying suit, was bound by the judgment establishing Imperial’s liability and its amount.

## Decision

- The court reversed the dismissal and remanded.
- The output contract was enforceable and not void for lack of mutuality, even without a fixed quantity term, because it covered all output from defined sources for a defined period and restricted the seller from selling elsewhere.
- The complaint sufficiently alleged that Kanotex’s assignment included assumption of the contract’s burdens as well as benefits, making Kanotex responsible for performance.
- The action was not barred by limitations because Imperial’s claim for reimbursement/indemnity accrued when Imperial paid the underlying judgment, not when Kanotex first refused to perform.
- Because Kanotex had notice of the underlying action and an opportunity to defend, it was bound by the judgment as to Imperial’s liability and the amount, absent fraud or collusion.

## Legal Principles

- A contract to buy all of a seller’s output from specified sources for a specified period is mutually binding and enforceable despite the absence of a stated quantity, where the output term supplies an objective measure and both parties are constrained.
- An assignee who takes an assignment intended to transfer performance obligations may be treated as having assumed the burdens of the contract and may be liable to the assignor for losses caused by nonperformance.
- A reimbursement/indemnity claim based on payment of a judgment accrues upon payment by the party seeking indemnity, not upon the earlier breach that triggered the underlying liability.
- When an alleged indemnitor receives notice of the underlying suit and an opportunity to defend but declines, the indemnitor is generally bound by the resulting judgment regarding liability and amount in a later action for reimbursement.

## Conclusion

The Eighth Circuit held that the one-year output contract was enforceable and that the assignee could be liable for assumed performance duties; it further held that the assignor’s claim for reimbursement accrued upon payment of the underlying judgment and was timely, and that notice and an opportunity to defend bound the assignee to the prior judgment.


Imperial Refining Co. v. Kanotex Refining Co., 29 F.2d 193 (8th Cir. 1928)