## Facts

- Orange and Rockland Utilities, Inc. (O&R) operated the Lovett generating plant in Tomkins Cove, New York and entered a long-term requirements contract with Amerada Hess Corporation (Hess) for No. 6 fuel oil.
- The agreement provided that Hess would supply O&R’s fuel-oil “requirements” at the Lovett plant at a fixed price of $2.14 per barrel through September 30, 1974 (subject to renegotiation thereafter).
- The contract incorporated O&R’s annual estimates of requirements: 1,750,000 barrels (1970), 1,380,000 (1971), 1,500,000 (1972), and 1,500,000 (1973).
- O&R’s estimates were prepared on the assumption that natural gas would be the primary generating fuel, and the contract expressly allowed O&R to use natural gas in any quantities available.
- Soon after execution, market prices for fuel oil rose sharply above the contract price.
- O&R demanded quantities substantially above the contract estimates (commonly described as roughly 40–60% higher).
- Hess refused to supply beyond a limited amount above the estimates.
- O&R sued for breach; after a nonjury trial, the trial court dismissed the complaint, finding O&R’s asserted requirements were not incurred in good faith.

## Issues

1. Under UCC § 2-306, whether O&R’s increased demands constituted requirements incurred in good faith.
2. Under UCC § 2-306, whether O&R’s demands were unreasonably disproportionate to the contract’s stated estimates, placing them outside Hess’s obligation to supply.

## Decision

- The Appellate Division affirmed dismissal of O&R’s complaint.
- The court held that O&R’s demanded quantities were unreasonably disproportionate to the contract estimates and therefore not required to be supplied under UCC § 2-306.
- The court agreed that O&R’s demand expansion, driven by the economic advantage of the fixed price during a market spike, was outside the type of requirements contemplated by the parties and failed the good-faith constraint.

## Legal Principles

- Under UCC § 2-306(1), a requirements contract obligates the seller only for the buyer’s actual requirements incurred in good faith.
- Even if demands are labeled “requirements,” quantities may be limited when they are unreasonably disproportionate to a stated estimate in the contract.
- Stated estimates in a requirements contract function as a benchmark to constrain unexpected and opportunistic quantity increases.
- A buyer may adjust requirements for legitimate business needs, but may not use a requirements contract to capture price gains through speculative purchasing inconsistent with the parties’ original understanding.

## Conclusion

The court enforced UCC § 2-306’s dual limits on requirements contracts—good faith and proportionality to stated estimates—holding that a buyer cannot compel deliveries far above contractual estimates when the increase is tied to opportunistic behavior rather than bona fide operational requirements.


Orange & Rockland Utils., Inc. v. Amerada Hess Corp., 59 A.D.2d 110 (N.Y. App. Div. 2d Dep’t 1977)