## Facts

- Superfos Investments Limited (a trader/supplier of anhydrous ammonia) and FirstMiss Fertilizer, Inc. (a fertilizer manufacturer) entered a written three-year ammonia supply contract around April 1, 1988.
- The agreement required FirstMiss to purchase a specified annual minimum quantity of anhydrous ammonia (80,000 tons per year).
- The contract included a shortfall-payment term requiring FirstMiss to pay for the annual minimum even if it ordered and took delivery of less than that amount.
- Superfos sourced ammonia from a producer, and deliveries were made through a pipeline system to FirstMiss’s facilities and customers.
- The contract contained a supplier-failure provision relieving Superfos of its delivery obligation if its upstream supplier failed to deliver sufficient ammonia.
- During the contract term, FirstMiss ordered less than the annual minimum and did not pay the contract price for the undelivered shortfall.
- Superfos sued to recover amounts due under the shortfall-payment term.
- FirstMiss moved for partial summary judgment contending the shortfall-payment term was unenforceable (as an invalid liquidated-damages provision or penalty).

## Issues

1. Whether a contract term requiring the buyer to pay the full contract price for an annual minimum quantity of goods, despite ordering less, is unenforceable as a penalty or unreasonable liquidated damages under U.C.C. § 2-718 and applicable Mississippi contract law.
2. Whether the shortfall-payment obligation is enforceable as a bargained-for price term and risk-allocation mechanism in a long-term commercial supply contract.

## Decision

- The court denied FirstMiss’s motion for partial summary judgment.
- The court held the shortfall-payment provision was not unenforceable as a matter of law on the summary-judgment record.
- The court treated the minimum-purchase/shortfall-payment structure as part of the parties’ negotiated allocation of volume risk in a long-term supply relationship.
- The court allowed Superfos to proceed with its claim under the contract, with damages and remedy measures to be determined in further proceedings.

## Legal Principles

- Under U.C.C. Article 2, merchant parties may structure commercial supply agreements to allocate risks and set primary payment obligations, subject to limits such as unconscionability and statutory constraints.
- A minimum-purchase or “take-or-pay”-type term may be construed as a primary price/volume obligation rather than a liquidated-damages remedy, and therefore is not automatically governed by penalty analysis.
- On summary judgment, a party seeking to invalidate a negotiated commercial term must show it is unenforceable as a matter of law; where enforceability depends on commercial context and contracting expectations, the issue may require factual development.
- The existence of reciprocal risk-allocation terms (such as a supplier-failure clause) supports enforcement of negotiated volume and payment commitments in an ongoing supply contract.

## Conclusion

The court refused to invalidate the contract’s minimum-purchase shortfall-payment obligation on partial summary judgment, holding it could be enforced as a bargained-for allocation of risk and price structure in a commercial goods contract, with the proper damages measure left for later proceedings.


Superfos Invs. Ltd. v. FirstMiss Fertilizer, Inc., 821 F. Supp. 432 (S.D. Miss. 1993)