## Facts

- Kendrick Oil Company (Kendrick) sent Petroleum Refractionating Corporation (Petroleum) a written order dated January 15, 1932, for “35–37 straight run gas oil” meeting Metropolitan Utilities District specifications, to be shipped to the Metropolitan Utilities District in Omaha, Nebraska.
- The order covered shipments in February, March, April, and May, for 1,500,000 gallons (10% more or less), priced at 45¢ per barrel, F.O.B. Pampa, Texas, with stated payment terms.
- The order included a seller-favorable clause: Petroleum could cancel any unshipped portion on five days’ notice “if for any reason” it discontinued making that grade of oil.
- Petroleum accepted the order and delivered 62,601 gallons under it.
- On February 16, 1932, Kendrick notified Petroleum that it would not accept further deliveries, stating that the oil being shipped was not of the standard specified in the order.
- After Kendrick’s refusal and after giving notice, Petroleum resold the remaining undelivered oil on February 21, 1932, at 25¢ per barrel.
- Petroleum sued Kendrick for breach of contract, seeking damages measured by the difference between the contract price and the resale price for the undelivered balance.
- Kendrick demurred to Petroleum’s amended petition, arguing it failed to state a cause of action because the cancellation clause left Petroleum free not to perform, so Kendrick’s promise lacked consideration.
- The trial court sustained the demurrer on the ground that there was no consideration for Kendrick’s promise to purchase. Petroleum stood on its pleading, judgment was entered for Kendrick, and Petroleum appealed.

## Issues

1. Whether a sales contract is unsupported by consideration (and therefore unenforceable) where the seller may cancel unshipped portions only if it discontinues making the specified grade of goods.
2. Whether Petroleum’s amended petition, taking its allegations as true, stated a cause of action for breach of contract sufficient to survive a demurrer.

## Decision

- The Tenth Circuit reversed the judgment sustaining the demurrer and remanded for further proceedings.
- The court read the cancellation clause as conditional on a real event—Petroleum discontinuing production of that grade—rather than an unrestricted right to cancel at will.
- Because Petroleum was bound either to deliver the specified grade or to stop making that grade (a legal detriment), the agreement supplied consideration for Kendrick’s promise to buy.
- With consideration present, Petroleum’s allegations of acceptance, partial delivery, Kendrick’s refusal to accept further deliveries, resale after notice, and resulting damages were sufficient to plead a breach-of-contract claim.

## Legal Principles

- A promise is not illusory, and a contract is not void for lack of consideration, merely because one party has a right to cancel, when that right is limited by a stated condition rather than left to free choice.
- An alternative undertaking can supply consideration where the promisor must choose between performances that each impose a legal detriment or confer a legal benefit (e.g., perform the sale or discontinue making the grade).
- When reviewing a demurrer, the court assumes well-pleaded factual allegations are true and asks only whether the pleading states a legally recognized claim.
- In a sale of goods, when the buyer repudiates and the seller resells after notice, damages may be pleaded as the difference between the contract price and the resale price for the quantity not taken.

## Conclusion

The Tenth Circuit held that Petroleum’s conditional cancellation right—triggered only by discontinuing production of the specified grade—did not make its promise illusory, so Kendrick’s promise to purchase was supported by consideration; accordingly, Petroleum’s amended petition stated a claim for breach and the demurrer was reversed and the case remanded.


Petroleum Refractionating Corp. v. Kendrick Oil Co., 65 F.2d 997 (1933)