## Facts

- John M. Shaw leased and operated a Mobil service station under two contemporaneously executed agreements: a retail dealer gasoline-supply contract and a service-station lease.
- The dealer contract required Shaw to buy at least 200,000 gallons per year and required Mobil to sell Shaw the amount he ordered, up to 500,000 gallons per year.
- The lease set rent at 1.4 cents per gallon of gasoline delivered, but no less than a scheduled minimum of \$470 per month; if gallonage rent was less than the minimum, Shaw had to pay the deficiency.
- In July 1973, Shaw ordered 34,000 gallons; Mobil delivered only 25,678 gallons.
- Mobil attributed the short delivery to governmental allocation requests during the 1973–74 energy shortage and demanded Shaw pay the full \$470 minimum rent for July.
- Shaw filed a declaratory judgment action seeking a determination that he did not owe the minimum rent for July given Mobil’s short delivery.
- The trial court ruled Shaw owed the minimum rent; Shaw appealed.

## Issues

1. Whether Shaw’s obligation to pay the lease’s minimum monthly rent was dependent on Mobil’s performance of its obligation to deliver the gasoline Shaw ordered under the related dealer contract.
2. Whether Mobil’s excused nonperformance (due to governmental allocation directives) left Shaw’s duty to pay the minimum rent intact or discharged it for the affected month.

## Decision

- The Oregon Supreme Court reversed.
- The court construed the lease and dealer contract together as a single integrated agreement governing the station’s operation.
- Mobil’s obligation to deliver the ordered gasoline (within the contract’s annual limits) and Shaw’s obligation to pay minimum rent were dependent promises.
- Because Mobil did not deliver enough gasoline in July 1973 to generate the minimum rent under the gallonage-based formula, Shaw was not required to pay the minimum rent deficiency for that month.
- Even if Mobil’s non-delivery was excused by governmental directives, that excuse did not make Shaw’s minimum-rent promise independent; the condition for Shaw’s minimum-rent duty (Mobil’s delivery) was not satisfied.

## Legal Principles

- Contemporaneously executed agreements concerning the same transaction may be construed together to determine the parties’ obligations.
- Promises are dependent when the contract structure and apparent intent show that one party’s performance is conditioned on the other’s performance.
- If a party’s performance is a condition to the other party’s duty, the failure of that performance can discharge the other party’s duty even when the failure is excused (i.e., nonperformance is not a breach).
- A contractual excuse clause may protect a nonperforming party from liability for breach without shifting to the counterparty the risk of performing despite the nonoccurrence of the condition.

## Conclusion

The court held that the minimum-rent obligation in the lease was conditioned on Mobil’s delivery performance under the integrated supply-and-lease arrangement; Mobil’s short delivery in July 1973 discharged Shaw’s duty to pay the minimum rent for that month, regardless of whether Mobil’s non-delivery was excused.


Shaw v. Mobil Oil Corp., 272 Or. 109, 535 P.2d 756 (Or. 1975)